The tax return cheat sheet

How you can pay (legally) pay less tax as an individual

(Disclaimer: this is general education and not to be taken as tax advice)

One day on his lunch break, Johnny and his colleagues were standing by the watercooler discussing their Fantasy Premier League picks and the results over the past weekend's matches. Unathi jumps into the conversation:

Johnny: Chelsea won. 3 - 0.

Joe: Yeah... boring game though

Unathi: You know what's boring? Taxes. Have you filed yours yet? I already received my refund from SARS!

Johnny: ...

Joe: ...

Unathi: Eish. File your taxes guys. I get a refund every year.

What can you (legally) do, to pay less tax, and perhaps even get a refund from SARS

Firstly, I want to make two things very clear:

  1. If you don't submit your tax return, you can't get a refund.
  2. If you don't pay any tax (PAYE or Provisional Tax) you can't get a refund, even if you file your tax return.

Just because you filed your tax return does not guarantee a refund from SARS.

Tax is a complex thing, and everyone's case is different, but there are a few things ALL individual taxpayers can consider to their tax burden.

  1. Retirement products:
    • Retirement annuity - Contributions you make yourself
    • Pension/Provident fund contributions - Contributions you make via your employer

Retirement products grant taxpayers a potential deduction of up to 27.5% of one's income up to a maximum of R 350,000 per tax year. Retirement products are a great way to reduce your taxes in the short term, but it's important to note that when you eventually retire and get annuity / pension fund payments, these will be taxed.

Finally, retirement products are financial products and it's best to consider these after you've done your homework or spoke to your financial advisor.

2. Donations to S18A organisations

Donations to S18A benevolent organisations grants a 10% deduction (with no limitation). If you donate R 10,000 and you're on the 18% tax bracket, you're saving 1.8k in taxes. When making donations, make sure that the charity is a S18A registered entity, otherwise you can't claim the deduction.

Just like retirement products, making donations to charity is personal decision and you shouldn't get tunnel vision.

3. Making contributions to a medical aid

Contributions to a medical aid received a small tax credit from SARS, and if you have more than one dependent, the tax credits you get from SARS will increase.

Tax credits simply reduces the tax you need to pay. It does not get paid out back to you.

Medical aids are also a financial product and (again) you need to do your homework on which medical aid will be best suited from you and your family's needs.

Note: If you are over 65 or suffer from a disability, you have access much greater medical aid tax credits from SARS.

Side note on S12J investments:

I'm often asked about my opinion on S12J investments. They look really pretty, but I'm not a fan. If you make a S12J investment, your investment is 100% tax deductible.

HOWEVER, should you wish to sell the investment within 5 years, you must add back the full deduction you received as an income. This means that many S12J companies will encourage you to keep the investment with them for the whole five year period, even if the investment doesn't do well.

The following categories only apply to you if you receive the income that relates to it:

Travel allowance deduction

If you receive a travel allowance as part of your employment package, you can claim a travel allowance deduction, but you MUST keep a logbook of business kilometres travelled, otherwise the deduction will be disallowed.

Home office expenses

If you mainly work from home, you can claim some expenses, based on current legislation, this deduction is very limited.

Commission Earners / Independent Contractors

If more than 50% of your income is from Commission (SARS code 3606) or Independent Contracting (SARS Code 3616), you can claim all your trade related expenses, but they have to be linked in some way or another to the income you earn. For example, if you're a photographer working as a contractor, you can claim the rent you pay on the camera equipment you hire for the work you do.

Rental Income

If you own a rental property, any costs that you pay for which relates to that property can normally be deducted. Bond interest, house insurance, rates, levies, repairs and maintenance etc.

Sole Proprietors

If you run your business in your personal capacity, you can claim all your trade related expenses, but they have to be linked in some way or another to the income or trade of the business.

The point of the matter is, if you receive an income, depending on how you earn it, there could be a deductions or exemptions that may apply.

There are many more deductions and exemptions, but these are fairly common.

In conclusion

Unathi tells the gents that she contributes regularly to a retirement annuity, and also has a medical aid. Her one rental property she manages is currently making a loss, so she's claiming that too. She gets help to file her tax return, but she's applying all the tips and tricks to reduce her tax burden...

After all, while it your burden and responsibility to pay taxes, it also within your rights to lower that burden within the arms of the law.

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