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"Claim it back from Tax" The Fact behind the Fiction

Posted 14 February 2012

There is this misconception that if one has an expense or makes a donation then “it can be claimed back from tax” While to the non-tax literate this may be true in a sense, having expenses or making donations for this purpose only, could actually backfire from a cash flow point of view. It is correct that you can claim the expense or the donation made as a deduction, this amount only comes off after all your income has been declared. So in affect it only reduces your taxable income and therefore the amount of tax paid. The problem is that the amount of tax paid is only a percentage of your taxable income so you are really only reducing your tax paid by that percentage not the full amount.

For example:
Income – R100
Donations made - R10
Taxable Income – R90

Assume a tax rate of 20%; therefore the tax would be R18 for the year instead of R20 had you not made the donation.

BUT you have made a donation for R10 cash thereby actually spending R8 more.

So be careful when doing something just because, “you can claim it back from tax”

Always consult a professional or even better ask TaxTim!

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