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Individual tax - The Basics

The one thing that takes South African citizens run around like crazy every year just before the due date. And then there is some of you that will go after the due date only to find out that you have just created more problems for yourself……penalties and interest...

Many South Africans don’t know any better. They go to SARS stand in a long line, hoping SARS will assist with the filling of those IT12 returns.

The problem is that you don’t know of any better and if your tax return is straight forward then maybe getting a qualified person is not worth your while. Or so you might think? The important issue is that no one will tell you how to structure your taxes on a legitimate way to save on tax or to help with your savings unless you get a qualified person that can assist with these services.

So what is the standard items or issues that the normal person might have for tax purposes?

  • IRP5
  • Medical aid certificate as well as medical slips
  • Travel allowance
  • Reimburse Travel Allowance
  • Retirement Annuity Fund
  • Interest
  • Rental income – from property per example.
  • Other income
  • Donations to public benefit organisations
  • Home office expenses – deduction but subject to requirements.
  • Wear and tear allowance – deduction for specified items.

With medical aid there is a capped amount R720 for the first two beneficiaries and R440 thereafter for the rest. But what about all the medical aid expenses that you paid for your loved ones? Well they are deductible over a certain bracket. But let’s keep it simple – I would suggest – keep all the slips and make a summary. This will bring down costs when the tax practitioner does assist you with your tax returns. For all families with a person in the family having any mental illnesses, the family will be able to deduct all medical expenses. As for retired people the same rule applies

Travel allowance – the one debate that people believe they will benefit to maximise the travel allowance per month. Big mistake. Travel allowance are worked out on the amount of business km driven versus total km driven. If your travel allowance is to high you will save in paying less taxes monthly but at the end of the financial year when the logbooks gets worked out you will pay in. The answer is to work out your cost per km including fuel, maintenance etc. Thus you will have a good understanding at the end of each month what your total travel allowance should be. Make sure to discuss this with your employer and to ask them to lower it for you if necessary.

Re-imbursive travel allowance – This amount of income exempt income and will not be taxed. So where is the catch? For every km driven sars will allow R2.80 per km. Everything above this bracket will be seen as taxable income. A Logbook will also be necessary whereby you will have to show km driven for business.

Retirement annuity fund – If you don’t have one you should consider getting one. SARS wants to help all our SA people to save for there old age. Why ? Because the more people that can look after themselves at a retired age the better for the country. So when you save monthly SARS will deduct this from your taxable income meaning that you will pay less tax per month or if this does not show on your payslip you will be refunded at the end of the year when submitting your IT12

Interest – With Interest there is a capped amount of R22800 for 2012. This means that all interest above this received for the year will constitute being taxed as income

Rental income – When renting out property this is seen as running a business. This means all rental will be included into your own personal capacity and you will be taxed on these funds. Also to consider is the costs. If you still have a bond on the property being rented out, then all interest paid for the year will be allowed as a deduction. Further all levies , rates & taxes, repairs & maintenance and electricity paid by yourself for the property will be allowed as a deduction. Thus you should remember to keep track of all these expenses and summarise them for the tax practitioner.

Other income – this might seem to be a grey area for a few but the important issue is to declare all income to SARS. Not doing so will be seen as fraud. Discuss this with your tax practitioner to ensure you do your tax on a professional and honest way.

Donations – When donating to none profit organisations SARS will allow this as a deduction. This will then decrease your taxable income and might put you in a different bracket but the end result will be that you will pay a little bit less tax

If you need assistance with your tax returns why not give us a call – YOUR ACCOUNTANT –  your financial partner for life.