Connect with us

Paying My Taxes

Who needs to pay what tax

Who needs to pay what tax

In this article we look at taxes affecting individuals with regard to what are your responsibilities concerning registration and payment. To understand the different types of taxes levied by SARS please review the article overview of the types of taxes

The South African tax system is based on your residence, meaning as a South African taxpayer, you taxed on your worldwide assets. This system has been in place since 2001 when South Africa changed from the “sourced based” system. 

Income tax or normal tax. 

This is most common category of tax paid by South Africans and includes PAYE, Provisional tax, Capital Gains tax and the Withholding of amounts of payments to non-resident sellers of immovable property.

PAYE

PAYE (Pay as Your Earn) is the tax deducted by an employer from their employees on a monthly basis and then paid over to SARS. The employer is then obliged to issue an IRP5 certificate to each employee from whom they have deducted tax. This implies that all of these employees must have a tax number. 

Employers are obliged to submit a reconciliation to SARS every 6 months to account for the PAYE that they have deducted from their employees and what they have paid over to SARS. This reconciliation can only be done if all employees from whom tax has been deducted actually have a tax number.

Currently the tax rebate allowed by SARS for every taxpayer is R15 714 (R24 327 if you are aged between 65 and 75 and R27 198 if you are over 75). A rebate is an amount that you can deduct from the tax that has been calculated on your earnings. This means that (as the lowest tax rate is 18%) a taxpayer will not pay tax on the first R87 300 (R87 300 x 18% = 15 714) of income they earn. This amount is known as the tax threshold. For people aged between 65 and 75 this threshold is R135 150 and if you over 75, R151 100. 

Marginal Rate

SARS taxes individual taxpayers according to a table which has various tiers with the rate of tax increasing as the amount of taxable income increases. Owing to the tax rebate outlined above and the fact that taxable income is taxed in tiers (or bands) the actual rate of tax paid will always be less than the maximum rate of tax applicable to your earnings. The effective rate of tax you pay (i.e. across all of the tax tiers and after the tax rebate) is known as your marginal rate of tax. The tax table for the year ending February 2022 is as follows:

Taxable Income Rates of Taxation
     
R         0 –            R   216 200       18% of each R1
R   216 201 –      R   337 800 R   38 916 + 26% of the amount over R   216 200
R   337 801 –      R   467 500 R   70 532 + 31% of the amount over R   337 800
R   467 501 –     R    613 600 R110 739 + 36% of the amount over R   467 500
R   613 601 –      R   782 200 R163 335 + 39% of the amount over R   613 600
R   782 201 –      R1 656 600 R229 089 + 41% of the amount over R   782 200
R1 656 601 + R587 593 + 45% of the amount over R1 656 600

So, even if you are luckily enough to earn R1 656 600 your marginal rate of tax will be 35.46% i.e. the rate can never get to 45% 

Provisional tax

As explained above, PAYE is the tax deducted by your employer on your earnings. Should you earn any income that is not subject to PAYE then you are required to register as a Provisional Taxpayer or SARS would not be able to tax these amounts. 

Provisional taxpayers are typically individuals who

  • Earn rental income
  • Interest or other investment income
  • Own a business
  • Are a Director of a company etc.

If you are obliged to register as a Provisional taxpayer then, even although you may also earn a salary, you will be considered to be a Provisional Taxpayer i.e. you cannot be registered as both a normal taxpayer and a provisional taxpayer.

An exception is that if you earn a salary and the other income you earn i.e. from rentals, interest etc is less than the tax threshold or the income from dividends, interest, rentals etc. is less that R30 000 you are excluded from being a provisional tax payer.     

Capital Gains tax (CGT)

In October 2001 SARS introduced CGT which applies to a resident’s worldwide assets. While this type of tax was fairly common in other countries, South Africans were fortunate to avoid it until this date. 

CGT is applicable to immovable property or assets of a permanent nature and is calculated as the difference between the proceeds when one of these assets is sold and the “base cost” (typically the purchase price). The base cost is only relevant to immovable assets sold that were acquired before October 2001. In these cases a formula, determined by SARS, needs to be used to calculate the deemed purchase as at October 2001.   

SARS uses various provisions and rates to calculate an amount which must then be included in your taxable income and taxed as per the tax table detailed above (hence why CGT is included in the category or income tax (or normal tax).  

All taxpayers are required to pay CGT should they have sold immovable property during the tax year.   

SARS does; however, allow a taxpayer to deduct an amount of R40 000 each year from any capital gain that they may have realised in that year. 

Withholding of amounts of payments to non-resident sellers of immovable property

This very particular tax was introduced as SARS had difficulties in collecting CGT from non-residents that sold immovable property in South Africa. To address this problem SARS introduced regulations requiring a purchaser who bought immovable property situated in South Africa from a non-South African resident to withhold 7.5% of the proceeds and pay this amount over to SARS.   

Taxation of foreign entertainers and sportspersons

This is a tax on amounts received by foreign entertainers and sportspersons for activities occurring in South Africa. The tax is collected as a withholding tax (similar with the withholding tax above applicable to non-residents who sell property in South Africa). 

This reason why this tax is included is that if a South African resident is involved in organising the event/s where foreign entertainers and sportspersons have earned revenue, it is the South African resident’s responsibility to withhold the applicable amount (15% of the proceeds) and pay it over to SARS. A failure to do so will result in punishment from SARS including imprisonment for up to 2 years!

Withholding tax on interest 

Another withholding tax to make sure that SARS get what is due to it.

From 1 March 2015 interest payable to a non-resident is subject to a 15% withholding tax. Again, the onus, as far as SARS is concerned, is on the person/institution paying the interest to withhold the tax and pay it over to SARS.

Withholding tax on royalties

And yet another!

From 1 January 2015 a 15% withholding tax is applicable to all royalties paid to non-residents if the source of those royalties is in South African. The person/institution paying the royalty is responsible for withholding the tax and paying it over to SARS

Donations tax

To prevent people from avoiding having to pay tax on assets by donating them to others, SARS introduced Donations tax.

SARS defines a donation as a gratuitous disposal of property. If the person receiving the donation gives fair value in return, then it is not a donation. 

Donations tax is levied at 20% for all donation up to R30 million and at 25% for all donations in excess of R30 million.

There are; however, 4 categories of exemptions that apply to donations tax

  • Category 1 – donations between spouses or to a public benefit organisation attract no donations tax
  • Category 2 – Companies and Trusts may make donations up to R10 000 per year without having to pay donations tax
  • Category 3 – Individuals may donations up to R100 000 per year without having to pay donation tax
  • Category 4 – bona fide contributions made towards the maintenance of any person. 

Donation tax is payable by the end of month following the month in which the donation takes effect. 

Dividend tax

Shareholders who receive dividends from South African resident companies (or a non-South African company which is listed on a South African stock exchange) are taxed on the dividends they receive as the rate of 20%.

While the person receiving the dividend is responsible to paying the Dividends tax, under normal circumstances the dividends tax is withheld by a withholding agent and paid over to SARS. 

Turnover tax on micro-businesses

If you have your own business either as a sole proprietor, a partnership or an incorporated business with a turnover of less than R1 million you may elect to pay turnover tax. Turnover tax is merely a simplified tax system in terms of which the taxpayer pays a specified rate of tax depending on the turnover (or revenue) of the business. The rates of turnover tax payable are as follows: 

Turnover  Rates of Tax
R            0  – R   335 000 Nil
R335 001 – R    500 000 1% of the amount over R335000
R500 000 – R   750 000 R1 650 + 2% of the amount over R500 000
R750001 –  R1 000 000  R6 650 + 3% of the amount over R750 000

Once the business earns more than R1 million the business no longer qualifies to pay Turnover Tax and will have to register for normal taxation.

Value Added Tax (VAT)

Unfortunately, we cannot escape the VAT levied on most goods and services that we purchase- 15%.

Any business/vendor that generates more than R1 million in a year is obliged to register for VAT. Once registered the business/vendor must charge VAT on all goods and services that they sell (except for a few items that are exempt in terms of the VAT Act). 

Often people request an invoice with no VAT as they are not registered for VAT; however, this is not possible as the onus is on the registered business/vendor to charge VAT on all items sold.

To be a valid VAT invoice, the business’ VAT number must appear on the invoice and for all invoices in excess of R3 500 the purchaser’s VAT number is also required to be on the invoice if they wish to claim the VAT back from SARS. 

The business/vendor who collects the VAT is obliged to pay it to SARS; however, they can elect to do this on a monthly or a bi-monthly basis.

Duties and levies

In the Overview of Taxes article, we listed a number of duties and levies which you may be subject to.

Transfer duty

Is payable by the person purchasing property (dwellings, holiday homes, apartments and similar abodes). 

Transfer duty can be considered as replacement for not paying VAT on a property you purchase as if the transaction is subject to VAT no transfer duty is payable. Transfer Duty is payable at the following rate:

Property Value Rates of Tax
R            0  –      R1 000 000 Nil
R  1 000 001 – R1 375 000 3% on the value above R1 000 000
R  1 375 001 – R1 925 000 R  11 250 + 6% on the value above R1 250 000
R  1 925 001 – R2 475 000  R   44 250 + 8% on the value above R1 750 000
R  2 475 001 – R11 000 000  R   88 250 + 11% on the value above R2 250 000
R11 000 000 + R1 026 000 13% on value above R10 000 000

Estate duty

Also known as a death tax, estate duty is payable on a deceased estate. Your estate will be taxed at 20% for the first R30 million and at 25% for the value of an estate in excess of R30 million.

The executor of your estate is responsible for paying the estate duty over to SARS.  

Skills Development Levy (SDL)

SDL is a tax payable by your employer at 1% of the payroll. As an employee you do not pay SDL.

Unemployment Insurance Levy (UIF)

Similar to SDL, UIF is collected by your employer and paid across to SARS; however, unlike SDL, your employer is obliged to deduct 1% of your salary from you and then contribute a further 1% before paying this amount over to SARS. 

Securities Transfers Tax (STT)

Introduced in 2008, STT is a tax that is payable on every transfer of shares (securities) at the rate of 0.25%.

STT applies to the purchase and transfers of listed and unlisted securities. According to SARS the responsibility for the payment of STT is as follows:

  • When listed securities are bought or transferred through or from a member or participant, the member or participant is liable for the tax. 
  • The transfer of any other listed security will result in the person, to whom the security is transferred, being liable for the tax. The tax must, however, be paid through the member or participant holding the security in custody. Should this not be the case, the tax must be paid through the company that issued the listed security.
  • With the transfer of an unlisted security, the company which issued the unlisted security is liable for the tax. The company may, however, recover the tax payable from the person to whom the security is transferred.

Air passenger departure tax

Air Passenger Tax (APT) is chargeable on all passengers departing on an aircraft that leaves from a South African airport destined to somewhere outside of South Africa i.e. only international flights. 

The current rate of APT is R190 per passenger but R100 for passengers departing to Botswana, Lesotho, Swaziland and Namibia. The tax is included in the price of the ticket and the various travel agents are responsible for paying the tax to SARS. 

Custom duties

These are duties paid by importers on goods they bring into South Africa

There are 3 kinds of duties levied on imported goods

  • Customs duties
  • Anti-dumping and countervailing duties (applicable on goods from countries that have been found to ship excessive quantities to South Africa or heavily subsidised goods into South Africa) 
  • VAT

There is a plethora of duties applied by SARS and so we will not review them here, suffice to say that they are payable by the importer. Unfortunately, while you do not pay these duties directly you ultimately end up paying these taxes through the increased price of the imported goods that you purchase. 

Environmental levies

SARS have embraced trying to provide for a better environment for future generations by introducing taxes that penalise what are non-environmentally friendly practises. 

To date, according to the Organisation Undoing Tax Abuse (OUTA) over R103 billion has been collected through these “green taxes” as follows:

SARS have implemented the following Environmental taxes

Electric filament lamps

Introduced on the 2009/2010 tax year, this affects tungsten, halogen and incandescent lights. The intention of the tax is to increase the price of these lamps to make fluorescent (energy saving) lights (which are more durable) a more attractive option. The levy is R10 per globe. 

Electricity generation

Introduced in the 2009/2010 tax year, this levy is applicable to electricity generated within South Africa. The levy is 3.5c/KwH

Motor vehicle CO2 emissions

The CO2 tax is levied on all new cars. Given that most of the CO2 emissions that are polluting the environment are generated by the older, less environmentally friendly cars, this does appear to be an anomaly.

This tax was introduced in June 2019 and has the effect of raising the price of petrol by 9c/l and diesel by 10c/l. 

Tyres

This tax was introduced in the 2016/2017 year on all new or re-treaded pneumatic tyres. The tax of R2.30/kg was actually not really an increase as the South African Tyre Manufacturers Conference members had already been paying R2.30 to REDISA (Recycling and Economic Development Initiative of South Africa) which was then cancelled when the new tyre tax was introduced.

Plastic bags

Certain types of plastic carrier and flat bags, the disposal of which is littering the environment, are subjected to the payment of an Environmental Levy.  The environmental Levy on plastic bags of 25c/bag (12.5c/bio-based bags) is payable by the manufacturers of those bags.

The number of plastic bags produced has increased from 2 billion in 2005/2006 to 2.6 billion in 2018/2019 so it appears that this tax is not having the desired affect. 

Excise duties

Excise duties and levies are imposed mostly on high-volume daily consumable products (e.g. petroleum and alcohol and tobacco products) as well as certain non-essential or luxury items (e.g. electronic equipment and cosmetics).

The primary function of these duties and levies is to ensure a constant stream of revenue to SARS, with a secondary function of discouraging consumption of certain harmful products; i.e. harmful to human health or to the environment.

The revenue generated by these duties and levies amount to approximately ten per cent of the total revenue received by SARS

Currently, SARS levies excise duties on the following products:

  • Ad Valorem Products 
    • These include, amongst others, Motor Vehicles, Electronic Equipment, Cosmetics, Perfumeries and other products generally regarded as “luxury items”. While these rates vary the rate is generally 9%.
  • Alcohol Products such as 
    • Malt beer (R1.95 a 340ml can of beer)
    • Traditional African Beer 34.7c/kg
    • Spirits/Liquor Products (R74.23/l whiskey)
    • Wine (4.65 on a 750ml bottle)
    • Sparkling wine (R15.22 on a 750ml bottle)
    • Other Fermented Beverages
  • Petrol products
  • Tobacco Products (R18.78 per pack of 20, 23g cigar R7.71)

Fuel levy

The pump price of petrol, diesel and biodiesel have three main fuel taxes included:

  1. The General fuel levy of 393c/l (petrol) 379c/l (diesel) 
  2. The Customs and excise levy of 4c/l for petrol and diesel
  3. The Road Accident Fund levy of 218c/l for petrol and diesel.

The carbon tax outlined above was also added on June 2019. 

With the carbon tax the total taxes per litre are 

  • Petrol R6.15 
  • Diesel R6.01

Sugary Beverages levy

Another health tax introduced by SARS in 2018 was the sugar tax on sugary drinks. The tax is 2.21c/g of the sugar content that exceeds 4g/100ml which in effect is 10% of the price of a can of coke.

The tax is payable by the manufacturers of the sugary drinks violating the 4g/100ml threshold. In its first year this tax contributed just under R3 billion to SARS.

Diamond export levy

On 1 November 2008 a Diamond Export Levy on unpolished diamonds exported from the RSA was introduced

The export rate of duty is 5% of the total value. The aim of the Diamond Export Levy is to:

  1. Promote the development of the local economy by encouraging the local diamond industry to process (cut, polish etc.) diamond(s) locally;
  2. Develop Skills; and
  3. Create employment

Mineral and petroleum resources royalties

Historically, mineral and petroleum resources were privately owned, meaning that payment for the extraction of these resources was payable to the State only under certain circumstances, e.g. where mining had been conducted on State-owned land.

This was changed when the Department of Minerals and Energy introduced a new Act where these resources are recognised as the common heritage of all the people of South Africa with the State as custodian thereof for the benefit of all South Africans. 

The royalty is now triggered on minerals extracted from within the Republic. The rate for the royalty is determined according to a formula and differentiates between the refined and unrefined conditions of the mineral resource, and are currently as follows –

  • for refined mineral resources: minimum of 0.5% to a maximum of 5%
  • for unrefined mineral resources: minimum of 0.5% to a maximum of 7%.

International oil pollution compensation fund contributions levy

This is a levy on registered ship owners which contributes to the International Fund for Compensation for Oil Pollution Damage, designed to help pay for damage arising from oil spills

While not exhaustive the above list of taxes, duties and levies demonstrates the number of opportunities that SARS have to relieve you of some of your hard-earned money. Thankfully most of these taxes are the responsibility of manufacturers and suppliers; however, as an individual you still have a number of potential responsibilities of having to pay taxes to SARS. 

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)).

Continue Reading

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. 

Continue Reading

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!

Continue Reading

Trending