How do I calculate how much tax I owe?

TAX PAYABLE is essentially calculated as follows:

Gross Income xxxxxx
Less Exempt Income (xx)
Income xxxx
Less Deductions (x)
Add Capital Gain inclusion x
Taxable Income xxxx
Tax Rate percentage %
Tax Amount xxx
Less Rebate (x)
Less Credit (x)
Tax Payable x

() – means a minus, a line means a calculation was done i.e. equals.

Let’s start at the top and see if we can better understand these terms!

Gross Income:

All income earned by South African taxpayers comes into the calculation under Gross Income. No matter if you think that you shouldn’t be paying tax or not you have to include all income in this line.

Examples:  salary and work related income, annuities and retirement lump sums.

Need more info? Read more about gross income

Exempt Income:

The Tax Act allows for certain types of income to be exempt from the tax calculation, all of these amounts come into this stage of the calculation.

Most common examples are: parts of dividends, portions of interest, parts of employment income earned.

The definitions for these are rather technical, refer to Section 10 of the Income Tax Act for more detail.

Income:

Income is defined as Gross Income less Exempt Income which is the effective income you are taxed on.

 Deductions:

A deduction is all the expenditure and allowances that you are allowed to take away from your income before you calculate how much tax you need to pay.

If you’re a salaried employee then you are limited to very few deductions, the most common being: Pension fund, retirement annuity fund, medical aid, depreciation of small assets.

If you own a business then you can deduct most expenses, provided they relate to the business and the income the business earns.

Capital Gain:

A capital gain is the difference between the base cost (i.e. initial price) of the asset you sold and the proceeds you received for selling this asset. For an individual 33.3% (25%) of this gain is included in the tax payable calculation.

An example of a capital gain would be the difference between the selling price of shares you sold and the amount you paid for them. Alternatively a capital gain is the difference between the selling price and cost price of your holiday home.

Remember that Capital Gains Tax can get quite complicated so look out for a separate blog post entirely devoted to the complexities of Capital Gains Tax.

Taxable Income:

Finally the taxable income amount is calculated, this will be the amount that any tax you will need to pay will be calculated using.

Tax Rate Percentage:

Depending on where your taxable income falls on the tax tables a percentage from 18%-40% will be applied to calculate your Tax Amount.

 TAXABLE INCOME (R) RATES OF TAX (R)

R0 – R160 000 18% of each R1
R160 001 – R250 000 R28 800 + 25% of the amount above R160 000
R250 001 – R346 000 R51 300 + 30% of the amount above R250 000
R346 001 – R484 000 R80 100 + 35% of the amount above R346 000
R484 001 – R617 000 R128 400 + 38% of the amount above R484 000
R617 001 and above R178 940 + 40% of the amount above R617 000

Rebate:

A rebate is the amount that SARS allows as an effective tax-free portion. This rebate will depend on your age and which rebate you qualify for.

The following rebates applicable to individuals are:

  • Primary rebate R 11 440
  • Secondary rebate (for persons 65 years and older) R 6 390
  • Tertiary rebate (for persons 75 years and older) R 2 130

 Credit:

A credit is an amount that SARS allows to offset any tax you may owe.

Typical examples of tax credits are the newly introduced medical tax credit and foreign tax credits. This applies if you earn income from another country and were taxed in that country.

 Tax Payable:

This is the amount of tax that is owed to SARS for the year of assessment. For salaried employees, from July to November, and for provisional taxpayers, from July to January, you will submit your return and pay any amounts outstanding to SARS. In some cases you may even receive a refund.

TaxTip – a refund and a rebate are two different things!

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