South-Africa-tax

How the tax system works in South Africa | 2022

With everything, you first have to understand the most basic things. Tax is simply a compulsory contribution to state revenue that every South African working citizen and business must pay. Non-South African residents are taxed on South African-sourced income. The majority of the state’s income is derived from income tax (personal and company tax).

Every year, the Minister of Finance presents the Budget, which outlines the total government expenditure for the following financial year and the ways in which this expenditure will be financed. Which we recently had on the 23rd of February 2022. See below:

This tax money pays for public goods and services, but it is also key in the social contract between citizens and the economy. Paying taxes fosters economic growth and development. 

Understanding taxes: types, filing for returns, refunds from SARS:

There are many different types of taxes. Just to mention a few, some include:

  1. Pay As You Earn (PAYE)
  2. Personal Income Tax
  3. Provisional Tax
  4. Capital Gains Tax
  5. Value Added Tax

An example: 

Ordinary taxpayers are the people who earn a salary from an employer. The employer deducts Pay As You Earn (PAYE) from their salary monthly and pays that to SARS on their behalf. Here’s an example of how Net Income will look like after taxes: 

Filing for tax returns

Income tax returns must be requested by registered taxpayers every year. The year of assessment for individuals covers 12 months, beginning on 1 March and ending on the final day of February the following year. Tax returns must be submitted to SARS on the date given, please note that SARS tax returns and CIPC tax returns are two different things and must be filed separately to both organizations respectively. 

Companies are required to submit an income tax return within 12 months from the date on which their financial year ends. People whose income comes from sources other than a wage  – such as a trade, profession or investments and companies – are required to submit two provisional tax returns and where applicable make two provisional tax payments during the course of the tax year and may opt for a third “topping-up” payment six months after the end of the tax year. – Source: SARS. 

You can submit tax returns yourself, or hire a certified and registered tax practitioner to file your returns on your behalf. Here are some things to consider when picking the best accountant/tax personnel for your business 👇

As per Tax Administration Act no. 28 of 2011, every person who provides advice to another with respect to the application of tax principles or assists with any tax matters for a fee must:

✅ Be registered with a Recognized Controlling Body that’s registered with SARS. 

✅ Be qualified.

✅ Undergo examination to evaluate their ability to competently perform functions of a tax practitioner

✅ Engage in continuing professional development.

Accase Solutions, for instance, is registered with the IAC, Institute of Accounting and Commerce as a Certified Tax Practitioner since the registration of Accase Solutions, practicing under practitioner number PR0100503.

Why SARS issues refunds:

If for instance, you take unpaid leave at work, the payroll administrator has to adjust your tax therein. If the adjustment is not made, it means that your company deducted more tax as it was based on a wrong annual income. In this case, SARS is liable to give you a refund.

The whole point of filing for tax returns is for SARS to determine all your taxes, and if you have paid, they conclude on the right amount. If you have overpaid them, they will definitely give you your money back. Understand that, you only get a refund IF you have overpaid because you filed for returns.

If you want a breakdown/in-depth understanding of different types of taxes, please refer to this blog: https://accasesolutions.co.za/2021/03/29/important-things-to-know-about-tax-in-south-africa/

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Tax Season Readiness

The Individual Tax Season is upon us, many of you might have seen us share a lot about this. In this blog, we will not get into any technicalities, but rather share the administration side of things (or so to say). 

Why You Need To File For Your Returns 

As many like to say when starting a business that it is important for you to identify your WHY, and so it is for us to know WHY is it important to file for your returns. 

1️⃣ The first, most general reason is that you are being a good citizen. Remember that if you don’t file, you are committing an offence as per Tax Admin Act, which is punishable by law.

2️⃣ For financing purposes, you need to be up to date with your taxes. When you apply for a home loan or car finance for instance, they will check your tax compliance status (as they do credit checks), it becomes an issue if you are not compliant with the South African Revenue Services (SARS). It communicates a message that you are not a god citizen who pays their dues. 

3️⃣ You might have heard some people saying it’s Refund Season (although that is not necessary 100% true), but if you don’t file and SARS actually owes you a refund then you won’t get it due to non compliance.

4️⃣ Regarding your Retirement Fund – if you retire and your taxes are not up to date, it will be an issue for your funds to be released. 

Those are some of the reasons why you need to be tax complaint. If you want this a bit more detailed, we did share a blog previously. Check it out here: https://accasesolutions.co.za/2021/03/29/important-things-to-know-about-tax-in-south-africa/

Where To File For Returns 

Just to mention, you have various opinions available to you, you are not bound to use a tax practitioner (for example) because it does come at a fee. Here are some of the options available to you: 

1️⃣ You can use your SARS e-filing.

2️⃣ You can use your SARS Mobi App.

3️⃣ You can make an appointment (via SMS or online) with your nearest SARS branch. 

4️⃣ Or you can use a certified tax practitioner: we have pointers on this on our blog previously. 

Mistakes: Criminal Offences

In passing, we would like to share these few red flags/little things that gets you in trouble with SARS and are actually criminal offences:

➡️ Not updating your details (emails address, banking details, postal address, etc)

➡️ Not filing for your taxes 

➡️ Failure to provide information as and when requested to do so by SARS

… and a few more as listed below:

Auto Assessment 

Moving right along… let’s touch on Auto Assessments. 

How it works:

Previously, you would get a certificate from your third party (medical aid, employer, etc), log in and slot in the details manually. But now,  SARS is connected to these 3rd parties and sources/uses information from them to pre-populate your returns. When your employer sends you IRP5, it gets loaded. When your medical aid gives you your certificate, it gets loaded. Everything you get from different institutions automatically get loaded into the SARS portal and when you login, you will find all this information in one place. 

So before you ACCEPT the auto assessment option, it is your duty to ENSURE that all the details are correct if you are doing it by yourself. If you find that something doesn’t make sense, you can decline the Auto Assessment and “Edit” it. Although you might find that having a tax practitioner makes things a lot easier because we know better and understand some of the technical things you might not understand. 

Home (Office) Expenses Deduction

If you follow us on social media, you might have seen us touch on this. So this is relatively new to most taxpayers due to Covid19 and working from home conditions (it has always been available to commission earners), but be in the know that you are able to deduct your home office expenses IF you meet the requirements. Some of the requirements include but not limited to:

✅ Your home office is used SOLELY for production of income. 

✅ If the employee’s remuneration is only salary, the duties are mainly performed in this part of the home. It therefore means you perform more than 50% of your duties in your home office.

✅ Where more than 50% of your remuneration consist of commission or variable payments based on your work performance and more than 50% of those duties are performed outside of an office provided by your employer.

NB: Only expenses relating to the premises must be allocated based on floor area (such as rent, interest on bond, cleaning, etc.). Expenses that do not relate to the premises (such as clothing and furniture) do not need to be allocated based on floor area.

If you qualify for a home office deduction; enter the expenses amount calculated next to the source code 4028 (Home Office Expenses) in the “Other Deduction” container on your Income Tax Return. 

Medical Aid Rebates (Tax Credit)

How rebates work;

SARS will show you how much tax you’re supposed to pay for the year, and we consider the rebates which reduce your tax liability. 

For example; if you’re supposed to pay SARS R20 000 for taxes, and your rebates add up to R10 000, this will mean that from the R20 000 you’re supposed to pay, your tax will go down by R10 000 and you will only owe SARS R10 000. 

However, this is not “automatic”. The “refund” comes in when you did not owe SARS anything (sitting at R0), and the medical aid credits come in (as per example)…leaving SARS in a position of owing you money due to the rebates. 

Note that these are not refundable credits in a sense that if you did not pay tax for the year but you have a medical aid, you will not automatically get a refund from the rebates. The rebates DECREASE your tax liability. So if you did not pay tax for the year, you are not going to benefit from the medical aid credit. 

We hope that this blog enlightened you and answered some of your questions. Feel free to send us a DM on our socials if you need clarity, or drop a comment below.