Finance – Master Tax Returns

Three specialists break down the ins and outs of filing your taxes

American comedian Christopher Titus is quoted as saying: “Born free, taxed to death.” This is a bitter pill to swallow if you are part of (according to the latest National Treasury report) only about 2,1 million of registered South African taxpayers who will pay tax in the 2019/2020 season.

WHERE DOES IT GO?

Tax contributions form part of the government’s funds collected by the South African Revenue Service (Sars) – a body responsible for ensuring that all working citizens contribute fairly towards this every year. According to Pumla Zondo, a tax specialist and chartered accountant, “Through this collection, the government is able to fund various public systems – making sure that facilities such as government schools, hospitals, road infrastructure as well as other social services and grants continue to be subsidised.”

WHO PAYS AND WHO’S EXEMPT?

“If you earn an income, be it a fixed salary, commission, bonuses or income from any business you have – then you qualify to pay tax,” Zondo explains. According to tax director at JDX & Partners Tax Practice, Lesedi Seforo, your age is also a deciding factor. There are certain age groups — who earn a certain income — who are free from paying income tax. These include:

Those younger than 65 years of age, who earn less than R79 000 per year (R6 500 per month); between 65 and 75 years of age, who earn less than R122 300 per year (R10 191 per month); and those who are 75 years and above, who earn less than R136 750 per year (R11 395 per month).

“Any other individual in these age groups who earns more than what’s stated above, qualifies to pay income tax,” adds Wanda Tshabalala, a tax specialist and founder of accountancy and tax company, Wanda Tshabalala Inc. “After that, tax is charged at a rate of between 18 % to 45 %. So, the more you earn, the more tax you pay,” he explains.

So there is light at the end of the tunnel and some comfort for those who don’t earn a lot.

BENEFITS OF PAYING

At the end of each month, when our salaries finally land in our bank accounts, they’ve already been taxed. So why is there a need to still file taxes every year? “The taxes deducted from your salary are only an estimate of the amount you will end up owing Sars,” Seforo says. The tax taken from your salary doesn’t factor in other income and expenses unrelated to your employment. For instance, you may have an investment property that you’re renting out, a freelance gig on the side, or earn a lot of interest through other income. Any amount taxed on this extra income won’t be considered by your employer, as they don’t know anything about it, Seforo explains.

Filing also gives you the chance to claim tax allowable expenses, such as extra contributions you make to retirement funds and medical costs that are not covered by your medical aid. These actually reduce the tax you need to pay for the year. Filing does have other benefits, like discovering, after adding all the tax paid from your streams of revenue, that you’ve overpaid and must be refunded. Ka-ching!

EARNING A HIGHER TAX RETURN

There are only a few things you can claim for, according to Tshabalala. These include travel allowance, medical aid contributions, retirement annuity, pension fund as well as income protection contribution. To claim travel allowance, you need to keep a detailed log book – include the make, model, year and cost of vehicle used, all business kilometres travelled and the purpose, Seforo explains. “Failure to keep a log book may cause you to lose the bigger tax refunds you deserve,” he says. He also adds that having an investment property you rent out might help you qualify for a tax allowance under the Urban Development Zone tax.

Zondo further explains that there’s confusion, where some think filing a return is about claiming from Sars. “A tax refund arises when you have paid more than what Sars has calculated to be paid by an individual for the year. The tax payable is calculated by applying the Income Tax Act, which determines what’s considered as income and expenses that can be deducted.”

DIY OR TAX CONSULTANT?

“I recommend using an independent consultant, because you may not have known there were other deductions you could’ve made use of to increase your refund,” Seforo advises.

And start early, so you can ask the relevant questions and get supporting documents. “Sars has made the process of submitting tax returns easier through the online interactive sessions (HelpYou-eFile) that serve as a guide when completing your return,” Zondo says.

INTERNATIONAL IMPLICATIONS

“When living abroad and are registered as a taxpayer, it’s your responsibility to declare all income earned to Sars,” Zondo explains. “The income earned abroad may have been taxed in the foreign country where earned, however declaring all income doesn’t mean you’ll be taxed twice — Sars will take this into account.”

If you work overseas, and spend more than six months in total of a 12-month cycle, which includes more than 60 continuous days – then the income earned may not be taxable in Mzansi. A person who has emigrated also won’t be taxed on income they earned while abroad. “But, they may still have to pay on income earned from South Africa – like interest earned through local investments and rent from private §properties,” Seforo shares.

SIDE HUSTLE INCOME

“You must declare extra income and expenses incurred as a freelancer,” Seforo says. Sars does allow you to deduct expenses incurred as a freelancer – like rent, salaries, as well as goods and services purchased in generating income, Tshabalala adds. Happy Tax Season!