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Paying My Taxes

South African Taxes Overview

The South African Revenue Service (SARS) currently collects 19 different types of taxes from individuals and companies.

Summary of Taxes

Fortunately, as an individual not all of these will apply to you; however, during your life as a taxpayer you will probably have to pay most of them at some point!

These different taxation types may be categorised as follows:

  • Income tax, also referred to as normal tax. The following taxes are included in normal tax
    • PAYE
    • Provisional tax
    • Capital Gains tax (CGT)
    • Withholding of amounts of payments to non-resident sellers of immovable property
  • Taxation of foreign entertainers and sportspersons
  • Withholding tax on interest 
  • Withholding tax on royalties
  • Donations tax
  • Dividend tax
  • Turnover tax on micro-businesses
  • Value Added Tax (VAT)
  • Duties and levies which include
    • Transfer duty
    • Estate duty
    • Skills Development Levy (SDL)
    • Unemployment Insurance Levy (UIF)
    • Securities Transfers Tax (STT)
    • Air passenger departure tax
    • Custom duties
    • Environmental levies
      • Plastic bag levy
      • Incandescent light bulb levy
      • Electricity levy
      • Carbon levy
      • Tyre levy
    • Excise duties
    • Fuel levy
    • Road accident levy
    • Anti-dumping, countervailing, and safeguarding duties on imported goods
    • Diamond export levy
    • Mineral and petroleum resources royalties
    • International oil pollution compensation fund contributions levy

A number of these taxes have different rates whether they are applied to individuals or companies e.g. the rate of income tax for individuals varies from 18% – 45% while companies pay income tax at a flat rate of 28%.  

The taxes listed above are all raised by National Government. In additional to these taxes Provincial Governments levy rates on the value of fixed property.

How do these taxes affect you?

While many of these taxes affect you directly, you are also often affected where a tax has had to paid by a company e.g. custom duties, as this “cost” will then be included in the price that you are charged. 

Below is a summary as to what your exposure is to the taxes you are most likely to be directly affected by as an individual.

Tax Type Method Rate
PAYE, Provisional Variable 18% – 45%
VAT 15%
CGT Up to a maximum of 18%
Donations Tax 20%, (<R30M) 25% (>R30M)
Dividends tax 20%
Withholding tax on interest 15%
Estate duty On value of estate 20%, (<R30M) 25% (>R30M)
Transfer duty Up to a maximum of 13%
Fuel levy Per litre of fuel R3.93
Road Accident fund levy Per litre of fuel R2.18
UIF On your salary 1% (max 177.12)
Securities Transfer tax On value of shares 0.25%
Plastic bag levy Per bag 25 cents

While the above table reflects the rates at which taxes are paid there are certain deductions and rebates which individuals may claim so the actual rates paid are lower. 

So, what do you actually pay?

To try and answer this question assume a taxpayer earns the monthly amounts per the table below and purchases 150 litres of fuel/month spends 50% of on “vatable supplies” (on net income after fuel). The amount of tax related just to income tax, VAT and fuel will be as follows:

Salary R10 000.00 R15 000.00 R25 000.00 R40 000.00
Income tax and UIF R    667.62 R  1 567.62 R3 926.26 R8 470.84
VAT R    532.24 R  836.08 R  1 404.03 R  2 176.13
Fuel  R   916.50 R   916.50 R   916.50 R   916.50
Tax paid R  2 116.36 R  3 320.20 R  6 246.79 R11 563.47
% of salary 21.16% 22.13% 24.99% 28.84%

 The above taxes do not include the various customs and excise duties included in many of the items that you buy as well the various environmental levies (plastic bags etc.). 

Conclusion

Understanding the real effect that the various taxes have on you will give you a better understanding as to what you actually have available to budget and spend each month. 

Paying My Taxes

How am I able to be Tax Compliant?

Over the past number of years, the importance of being tax compliant has become ever-more relevant. 

Certain professions are making it a pre-requisite for membership to their regulatory organisations and more and more financial transactions are requiring a positive tax compliance status.

These requirements are also mirrored in the corporate world with access to suppliers and especially tenders requiring the applicant to have their tax affairs in order.   

Requirements for tax compliance

To be tax compliant essentially requires that the taxpayer adheres to the following 3 obligations:

  • The that taxpayer is correctly registered for all taxes that are applicable to them
  • That all required returns have been submitted to SARS and
  • That the taxpayer does not have any outstanding debt with SARS. 

It is important to note that “all” returns are required to be submitted and not just “most” or the latest ones. 

If a taxpayer has an outstanding debt but has entered into a repayment plan which has been accepted by SARS, the taxpayer will still be considered as being compliant.  

Tax Compliance Certificate vs Tax Compliance Status

In the past SARS issued physical Tax Compliance Certificates (TCC) which, depending of the nature of the TCC, was valid for a certain period e.g. Good Standing was valid for 1 year, a TCC for a Tender was valid for 3 months etc. 

SARS have upgraded their systems and no longer issue a physical TCC. In its place they introduced a Tax Compliance Status (TCS). Under this system SARS issue the taxpayer a PIN which the Taxpayer may share with anyone who requires the TCS of the Taxpayer. 

Under this new system the person using the PIN will access the “live” status of the Taxpayer. This system avoids the scenario where a Taxpayer may have a TCC issued to them and they then do not submit returns or pay amounts due for the next year as their certificate issued is still valid.   

Type of Tax Compliance Statuses

SARS offers the following 4 versions of tax compliance Statuses (TCS)

  • Good standing 
  • Tender
  • Foreign Investment Allowance (FIA) and
  • Emigration

Good Standing 

The TCS for Good Standing is the general status used for a variety of requirements and no further documentation is required to be submitted on application. 

As mentioned above this TCS is the live status of the Taxpayer’s profile on SARS’ systems.

A taxpayer may access their eFiling profile with SARS and check on their TCS. Should they not be compliant the system will indicate the problem e.g. outstanding returns or an amount due.

Tender  

The TCS for  tenders is for companies having to comply with specific tender conditions. No additional information is required to be submitted to SARS as the PIN shared by the Taxpayer allows the company issuing the tender to access the live TCS of the Taxpayer.

Fixed Investment Allowance (FIA) TCS

When applying for TCS for a Foreign Investment Allowance the taxpayer has to submit additional documentation as follows:

  1. Relevant material that demonstrates the source of the capital to be invested. 
  2. Statement of assets and liabilities for the previous three tax years (this should include disclosure of all investments, loan accounts and distributions from local and foreign companies, trusts, etc.)
  3. Applicable Power of Attorney where the TCS application is submitted by a person other than the taxpayer.

With regard to point 1 the following documents regarding the source of the capital to be invested are required to be submitted

  • Loan: 
    Where the parent lends money to the child to invest offshore:
  • Loan agreement; and
  • Bank statement of parent, not older than 3 months.

The trust lends money to the trustee or beneficiary to invest offshore:

  • Loan agreement;
  • Bank statement of trustee or beneficiary, not older than 3 months;
  • Latest Trust Financials;
  • Three months bank statements of trust, not older than 3 months; or
  • Trust’s latest share portfolio statement (not older than 3 months). This statement will also include the number of shares and current market value.

The company lends money to a director of the company to invest offshore:

  • Loan agreement between the company and the director;
  • Bank statement of the director, not older than 3 months; and
  • Company’s latest annual financial statements.
  • Donation:
    If the donation is between spouses:
  • A declaration (IT144); and
  • Bank statement of donee, not older than 3 months

If the donation is not between spouses:

  • A Declaration (IT144)
  • Proof (Copy of the receipt) of donations tax paid; and
  • Bank statement of donor and donee, not older than 3 months.
  • Inheritance:
    • Letter from the executor of the estate;
    • A copy of the Liquidation & Distribution account; and
    • Bank statement, not older than 3 months.
  • Savings / Cash / Bank Account / Fixed Deposits:
    • Bank statement, not older than 3 months; and
    • Proof of source (i.e. where and how you obtained the money).
  • Shares:
    • Portfolio statement not older than 3 months. This statement will also include the number of shares and current market value.
  • Sale of property:
    • A copy of the transfer duty.
    • Original letter of the Conveyancer to confirm the transfer of the property and that the money will be transferred from the trust account; or
    • Proof of receipt of the proceeds together with applicant’s bank statement not older than 3 months.
  • Royalty Income:
    • Source of royalty income; and
    • Proof of royalty payment.
  • Earnings:
    • Where you have recurring foreign investments not exceeding R30 000 per annum a copy of a salary slip is needed once a year;
    • The policy number; and
    • It must be noted that the institution will apply on behalf of the taxpayer.
  • Distributions from a trust:
    • Resolutions from the Trust making the distributions;
    • Details of the source from the Trust making the distribution;
    • Bank statement of Trust, not older than 3 months; or
    • Trust’s latest share portfolio statement (not older than 3 months); this statement will also include the number of shares and current market value.
  • Other:
    • Documentary proof and explanation.

Emigration TCS

When applying for a TCS in respect of emigration the following documents are required to be submitted:

 Where the Taxpayer is for a first-time emigrant:

  • Statement of assets and liabilities for the previous three tax years (this should include disclosure of all investments, loan accounts and distributions from local and foreign companies, trusts, etc.)
  • A certified copy of the final application form ‘Request for settling in allowance” (MP336(b)) submitted to a foreign exchange dealer; or
  • Where the authorised dealer (e.g. bank) informed you not to complete the MP336(b), the authorised dealer must provide a letter stating the reason(s) why the MP336(b) should not be completed.
  • Applicable Power of Attorney where the TCS application is submitted by a person other than the taxpayer.
  • Capital Gains Tax calculation on the deemed disposal of assets on the day before the taxpayer cease to be a resident.
    • This is applicable where amounts are included under listed and unlisted investments as well as other assets (e.g. Kruger Coins).
    • Where the applicant is a member of a pension, provident or retirement annuity fund, the following particulars in respect of each fund must be submitted on a separate sheet:
      • Name of fund;
      • Expected lump sum amount to be paid out; and
      • Date of expected payment.
    • Where the applicant has a South African insurance policy, the following particulars in respect of each South African insurance policy the taxpayer own must be submitted on a separate sheet:
      • Name of insurance company;
      • Address of insurance company;
      • Policy number;
      • Date on which any benefits from the policy are expected; and
      • Particulars of expected future benefits from such policy.
    • Where the applicant, wife or minor children are beneficiary of a trust, the following particulars must be submitted on a separate sheet:
      • Name of the trust;
      • Income tax reference number of the trust;
      • Name(s) of the trustee(s);
      • Postal address of the trust;
      • Business address of the trust;
      • Nature of income received from the trust and the annual amount thereof;
      • Date on which you first received income from the trust;
      • Monthly or yearly amount received from the trust.
    • Where the applicant, spouse or minor children are the shareholder(s) of a private company or member(s) of a close corporation, the following particulars must be submitted on a separate sheet:
      • Name the private company/close corporation;
      • Income tax reference number of private company/close corporation;
      • Number of shares/percentage of interest;
      • Postal address of private company/close corporation; and
      • Business address of private company/close corporation.
    • In case of a family unit, if the spouse wishes to be issued with a separate TCS in order to formalise his/her emigration, then the spouse must do the following:
      • Complete a separate TCR01 – Tax Compliance Request form
      • Submit a certified copy of the final application form ‘Request for settling in allowance MP336(b) submitted to a foreign exchange dealer (NOT a copy of the MP336(b) submitted by the husband/life partner); and
  • Submit the supporting documents in support of her application. 

Note: The above will not apply where the family unit is emigrating together, and the details of the spouse are captured in the TCR01. In this event, the TCS for the applicant will include the details of the spouse (that is, names and tax reference number (if applicable)).

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Paying My Taxes

How Do I Calculate My Tax

While many textbooks have been written on this topic we will only be able to give a high level overview of the process of determining how to calculate your tax. 

Tax Returns

The amount that a taxpayer is liable to pay SARS is largely determined by the tax return submitted by the taxpayer. SARS receives information from various sources about the taxpayer prior to the opening of the tax season and populates the taxpayers tax return with this information. 

When the tax season opens, and the taxpayer is able to access their tax return, they will see all of the information that SARS has already uploaded (IRP5s etc.). It is then for the taxpayer to confirm the information already submitted and to supply any other information that is not already captured on the tax return. 

What is Included

Residency 

South African’s tax system is based on residency so as a South African resident you are taxed on your worldwide income. If you are a non-resident you will only be taxed on your South African income. 

Marital Regime

Your marital regime will also have an impact on how you are taxed. If you are married in community of property you will be taxed on half of your interest, dividends, rental income and capital gain and half of the interest, dividends, rental income and capital gain of your spouse. This is regardless of in who’s name the assets are registered. 

If a spouse has received assets in terms of an inheritance or a donation which specified that these assets are not subject to the effects of any marital regime then they will be excluded from the above.

Process Overview

Determination Taxable income

While each taxpayer’s circumstances may be different, the purpose of the process outlined below is to give a general overview of the steps to follow to calculate the tax owing.  

Income  (will include)

  • Remuneration – including (from employment)
    • Fringe benefits
    • Allowances
    • Lump sum payments
  • Sole proprietor income (a side-line business or even your main business)
  • Investment income (dividends, interest – both local and foreign)
  • Capital Gains
  • Donations received
  • Deemed income
  • Income from Farming
  • Any income considered
    • Taxable
    • Non taxable

Less

Allowable deductions and exemptions

  • Interest exemption
  • Dividends received
  • Travel allowance 
  • Business travel
  • Retirement funding contributions
  • Donations to PBOs
  • Medical expenses
  • Wear and tear
  • Bad debts/doubtful debts

= Taxable Income

= Taxation (according to tax tables)

Less

  • Primary rebate
  • Medical Scheme Credits

= Tax payable to SARS.

It is important to note that a taxpayer is responsible for making a full disclosure on their tax return. 

So even where a taxpayer has earned income which will not be taxed e.g. interest of less than R23 800 the taxpayer is still required to declare the full amount of interest earned and to then deduct it in determining their taxable income.  

While an employer is responsible to correctly taxing the remuneration paid to an employee, the employee is still ultimately responsible for ensuring that their tax return is correct. The employer can only tax what they pay to an employee, they are not responsible for any deductions an employee may claim against that income e.g. travel allowances etc. 

If you receive income from multiply sources, you will be a provisional taxpayer. An employer will tax the employee at the rate applicable as if the employee only earned remuneration as they will not be aware of the details of the “other income sources” which will probably make this rate different to the final marginal rate applicable to the taxpayer. 

Supporting documentation

SARS is entitled to call for any documentation that supports the information in your tax return. Accordingly, it is very important that all figures captured in your tax return can be verified with adequate documentation. A failure to provide the requested documentation will result in deductions claims being disallowed. 

The failure to provide any requested information will also cast doubt on your entire return so there are consequential challenges. In a worst-case scenario SARS may even impose levies of 200% for additional assessments of tax they believe are due and payable. 

Retention of Records

 While individual taxpayers are required to keep all their tax information (including all supporting documentation) for a period of 5 years it is advisable to keep all records for a minimum period of 7 years. 

The retention of records refers to all physical items as well as data created by a computer, including data in an electronic form in which it was originally created or in which it is stored for back-up purposes. 

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Paying My Taxes

How Can You Minimise the Tax that You Pay

In  other articles on Money 101 we have reviewed the taxes that SARS collect and what your obligations to SARS are. What you are probably more interested in is how can you actually try to minimise that tax that you pay. 

If we were to go back about 25 -30 years ago there were a number of tax schemes people became involved with and there were also many options for people to try to structure their tax more efficiently. Trusts were also the flavour of the day and thousands were being registered because, among other advantages, they offered tax advantages.

Unfortunately, owing to the abuse of these schemes and the blurring of what is tax avoidance (legal tax structuring) and tax evasion  (illegal no-paying of tax) SARS has either withdrawn a number of these  schemes and tax deductions or redefined what is allowable to limit their benefit.

So, what can you do?

Retirement Funding contributions

The first thing that we would recommend is to ensure that you maximised the tax deductions relating to contributions to retirement savings as far as you are able. 

You are able deduct up to 27.5% of your taxable income (or remuneration) up to maximum deduction of R350 000 p.a. as a contribution to retirement savings. So not only are you enjoying a tax reduction, but you are being prudent in providing for your retirement so that hopefully you can be part of the only 6% of South Africans who can actually retire financially.

Retirement funds comprise your pension and provident contributions which are generally your employment-based schemes, unless you are self-employed; but they also include contributions to retirement annuities (RAs). RAs are flexible in that you can contribute monthly amounts as well as lump sums making them a suitable vehicle to use for your tax planning.   

When you consider that, if your marginally tax rate 30%, each R100 contribution is effectively costing you R70 but the full R100 will grow until your retirement, this probably has to be your first option when considering ways to pay less tax. 

Tax Free Investment 

Since 1 March 2015 South Africans have had the option to invest R33 000 (increased in the 2021 tax year to R36 000) per annum in approved savings instruments tax free. The R36 000 per annum is further capped at R500 000 in your lifetime. 

The R500 000 lifetime contribution is cumulative meaning that if you withdraw amounts you cannot deduct these from the R500 000 lifetime contribution.  

All proceeds including interest, dividends and capital gains on the disposal of the investment are free from tax. 

When compared to other investment options available in the market, the tax-free investments have proved to definitively be one of the best options available.

Interest Exemption

Apart from the first two issues already discussed above, every taxpayer is allowed an annual deduction of up to R23 800 (R34 500 if you are older than 65) for any interest that they have received during the tax year. 

If you have exhausted the two options above (lucky you!), then you may want to consider investing an amount in an interest-bearing instrument that will generate interest up to this amount. 

Medical Scheme Credits

If you are the principal member or responsible for the contribution payments of a medical aid scheme, then you qualify for a monthly tax credit as follows:

Monthly tax credit Annual tax credit
Main member 332 3 984
Main member with 1 dependent 664 7 968
Main member with 2 dependents 888 10 656
Each additional dependent qualifies for a further tax credit 
of R224 per month

As this is a tax credit i.e. a credit from the tax that you have to pay as opposed to a tax deduction that can be used in in determining the taxable amount before tax is calculated, the effect is greater. 

As this is a tax credit, if you are married it does not make a difference which spouse is the principal member.

Medical expenses deduction

Apart from the Medical Scheme Credits (MSC), you may also be able to claim a further deduction for medical costs according to the following formula

Deduction = {(7.5% x taxable income) – {(Medical aid contributions) – (MSC x4)} + other qualifying medical expenses} / 4

Or in words, so much of your medical aid contributions less 4 times the MSC that you claimed plus other qualifying medical expenses (OQME) that exceed 7.5% of your taxable income divided by 4. 

A practical example would be as follows:

Assume the following taxpayer situation

  • Annual taxable income   R300 000
  • Medical contributions R3 200/month or R38 400 per annum
  • Principal member + 1 dependent so MSC = R664/month or R7 968 per annum
  • Other qualifying medical expenses R50 000 (there was an incident during the year and while the medical paid 100% of the medical aid rate some specialists charged 300% of the rate as well there was a shortfall in the prescribed medicines)

In terms of the above formula the taxpayer could claim R8 482 as follows

7.5% x (taxable income) R300 000 = R22 500

Medical aid contributions (R38 300) – MSC x 4 (R7 968 x 4) + OQME (R50 000) = R56 428

R56 428 – 22 500 = R33 928

Divided by 4 = R8 482

Travel Allowance or Company Car

If you receive a travel allowance as part of your remuneration or are allowed a company car then it is highly recommended that you keep an accurate logbook of your business travel. 

If you receive a travel allowance you will probably be taxed on 80% of this amount; however, if you keep an accurate logbook and your business travel comprises more than 20% this additional amount me be claimed. 

If you receive a company car as part of your remuneration package, it is a fringe benefit that will be included in your taxable income and taxed accordingly. However, if you keep an accurate logbook you will be able to reduce the amount of the taxable benefit by the cost of your business travel. 

 Make a donation to a Public Benefit Organisation

Certain charitable enterprises are registered with SARS as a Public Benefit Organisation (PBO). Donations by a taxpayer to these enterprises are tax deductible up to 10% of your taxable income. On making a donation to a PBO, the PBO is required to issue you with a certificate acknowledging the donation which is will support your claim from SARS.

Commission Earning Taxpayers

If you earn commission and this amount constitutes more than 50% of your total earning then you are entitled to claim

  • The costs that were incurred in earning that commission and
  • Business travel

Typical costs that are incurred in earning commission include telephone and data costs, stationery, entertainment, the cost of any support employees etc. 

Trusts

I mentioned previously that Trusts used to be a popular vehicle for tax planning; however, this opportunity has been severely limited over the years by SARS to the point where Trusts are taxed at 45%- a rate significantly higher than individuals as well as companies. 

Trusts still fulfil a very useful role in the estate planning and other circumstances so they continue to be used. 

It is possible to avoid the Trust having to pay 45% on its earnings by applying what is known as the conduit principle to Trusts. All this means is that the income of the Trust is declared to its beneficiaries who then include it their taxable income and so it gets taxed at each beneficiaries marginal rate.    

In the application of the conduit principle the nature of the income is retained, so if the Trust had made a capital gain which it distributes to the beneficiaries the beneficiaries will declare that income as a capital gain in their tax returns.

It is apparent, as mentioned at the start of this article, that there are not too many opportunities for a taxpayer to reduce the amount of tax that they are required to pay to SARS. If you are disappointed by this situation remember

  • What is worse than paying tax – not paying tax and
  • The tax regime does not have to be fair – it just needs to collect enough revenue for the fiscus!

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