Income Tax for individuals

Income Tax in South Africa is dealt with here. See Quick Reference for more specific income tax information. Also, income tax is dealt with under specific headings.

The South African system for individuals starts with what a person “receives” or “accrues” and includes this as part of that person’s “gross income” for a particular year. Certain exemptions or deductions may then be claimed. What is left is subject to normal income tax rates.

Completion of personal income tax returns is explained in a guide issued by the South African Revenue Service. This guide is very useful as should enable most taxpayers to correctly complete their personal filings.

It would not be practical to deal with all the amounts that should be included, exempted or deducted to derive at what is taxable. Below are some of the most generally found items in South Africa:

Employment earnings:Employment salary will be disclosed on your IRP5 certificate issued by your employer. The IRP5 certificate distinguishes between the various classes of employment earnings and benefits. It also discloses contributions to pension, provident or medical aid. Finally, the IRP5 certificate discloses PAYE that has been withheld from your monthly salary and paid over to SARS;

Travel allowance and your claim: A travel allowance must be salary sacrificed, salary structured or otherwise received to warrant a claim there against. The claim must be done in your personal submission.

Subsistence allowances: Subsistence allowance is not subject to PAYE withholding by your employer. Still, the allowance should be disclosed in your return and you may claim actual or deemed expenditure there against.

Other allowances: The South African Revenue Service has legislated against claiming most other expenses.

Profit from a business: Business profit is taxable on a net basis. There are special and complex rules on what should be recognized and there are special wear and tear provisions in the South African Act.

Rental: The net rental you make is effectively taxable and any amount actually incurred in the production of rental and that is not of capital nature is deductible. This is one of the areas where professional advice and planning may generate significant savings.

Retirement funding: This is one of the few allowable deductions that are still viable and that make sense. An employee or taxpayer may still claim deduction for contributions to certain approved pension or retirement annuity funds. Your broker should be able to advise on the allowable claims, but watch for operators that just try and sell their products without checking that your will actually qualify for the deduction.

Investments: The right investments can make a significant difference. For instance, South African dividends are exempt from taxation, whilst interest and non-South African dividends are taxable, subject to certain minimum earning exclusions. Also, buying and selling shares may result in a taxpayer being considered a share trader and then all profits from your share activity will be not be seen as a capital gain but will be treated under normal taxation principles

Income Tax of certain offshore investments: The implications of these investments are often complex. The manner in which these investments are structured may often result in a taxpayer not “receiving” or “accruing” anything. There are certain deeming provisions in the South African system that one should be careful of. These sections deem you to earn something even though you have not earned or received it under normal income tax rules.

If you have any questions, please complete the contact form with your details and one of our corporate Financial Planners will call you.