Too often, taxpayers rush when completing their tax return, and then they miss out on some expenses they are eligible to claim. Don’t overpay tax by overlooking these seven common tax breaks.
Contributions towards a Retirement Annuity Your contributions towards retirement funds are deductible for tax up to a limit of 27,5% of the greater of your taxable income or remuneration (to a maximum of R350,000 per year). This limit applies to the total contributions you make to any Pension, Provident or Retirement Annuity (RA) fund during the year. The tax deduction will always be limited to the actual contributions you made.
What taxpayers don’t always know, is that if you contribute to a RA specifically, either on your own or via your employer, you need to report these details to SARS in the special section on the ITR12 for Retirement Annuities. Just to reiterate, you only need to do this for RA’s and not for contributions to Pension or Provident funds (the details of which will be pulled into the ITR12 automatically via your IRP5).
In order to claim the tax break for RA contributions, you’ll need to have proof of your contributions by way of a certificate called a RAF Contribution Certificate (IT3F), which should be issued by the financial institution.
If you contribute to a Medical Aid, you will receive a fixed monthly tax credit for each member on your policy. SARS calls this rebate the Medical Schemes Fees Tax Credit - it is a flat rate per month (i.e. it doesn’t take your taxable income into consideration) and is a direct deduction off your tax liability. Note that the tax credit applies only to registered medical aid funds – medical insurance or GAP cover does not count.
Make sure that you have a tax certificate from your medical aid provider as support for this tax credit. They generally send these out on email before filing season opens.
If you have ‘qualifying’ medical expenses, which were not reimbursed by the medical aid, you should also include these in your tax return because you may qualify for an ‘additional medical expenses tax credit’. Qualifying medical expenses includes all consultations with medical practitioners as well as doctor prescribed medication. SARS applies a complicated formula to work out whether you spent enough to qualify for an ‘additional medical expenses tax credit’.
Remember to ensure you have proof for every single medical expense you paid for over and above your medical aid cover with invoices and / or detailed receipts.
If you’re a generous soul who likes to support a charity, you’ll be pleased to know that any donations given to registered Public Benefit Organisations are tax deductible up to a maximum of 10% of your taxable income (any disallowed donation exceeding the threshold can be carried forward and deducted the following year subject to the same limit).
Note that SARS will only allow the deduction if the charity you’re donating to has a PBO number and can issue you with a tax certificate for your donation (called a section 18A certificate).
The work environment is changing and these days many salaried employees make use of personal devices for work purposes (e.g laptops or cellphones). If you’re using a device purchased and maintained in your personal capacity for work, you may be able to claim the depreciation on the device as a tax deduction.
This deduction is subject to a letter from your company stating that you have express permission to use the device for work purposes, and that they’re not compensating you with an allowance for such.
If you’re a salaried employee but work mainly from home in a specifically dedicated space, e.g. a study or office area not used for any other purpose, you’re able to claim certain running costs associated with that space. These may include:
Interest on your mortgage bond
Maintenance (repairs – note: not cosmetic improvements)
Wear and tear on office equipment
You will need to work out the total square meterage of your home office in relation to the total square meterage of your house, and then convert this to a percentage. You must then apply this percentage to the home office expenditure in order to calculate the portion, which is deductible.
Home office expenses can be a tricky one to justify so read our blog for further details and also check here to see if and what you qualify to deduct.
The area of a travel is a confusing one for many taxpayers. There are a few specific circumstances where you can claim your business mileage:
you receive a travel allowance which appears next to source code 3701 or 3702 on your IRP5
you receive the use of a company car fringe benefit which appears next to source code 3802 or 3816 on your IRP5
you are a commission earner (more than 50% of total remuneration must be derived from commission)
you are self-employed, an independent contractor or freelancer
If you fall into any of the above categories and you’ve racked up the km’s on your vehicle due to travelling for business purposes, be sure to include your travel claim in your tax return. Remember that business travel for salaried employees doesn’t include getting to the office from home and back every day, but would include for instance, travelling to a business meeting where you presented your products or services to a potential new customer.
To claim travel expenses as a tax deduction, you’ll need to keep an accurate, detailed logbook of all business-related travel as well as expenses e.g. fuel, oil, service costs, licence and insurance. The kind of information SARS will want to see is your kilometre reading on the first day of the tax year (1 March), the closing kilometre reading on the last day of the tax year (end February) as well as the make, model, year and value of your vehicle and the number of kilometres used for business and personal use. In the absence of a logbook, your claim will be refused by SARS.
Commission expenses (only for commission earners!)
If you are a commission earner then SARS will allow you to deduct all of your commission related expenses against your commission income. Remember that to be classified as a commission earner, your commission income per source code 3606 must be more than 50% of your total remuneration per source code 3699.
Essentially the rule of thumb is that in order to claim, you’ll have to have incurred expenses in direct relation to earning income. If you’re purchasing a product at a wholesaler to on-sell to a client at a profit, your input costs are clear. It starts becoming a little ‘grey’ when you put in claims for lavish lunches and entertainment costs. Be warned that in these instances, SARS may flag your return for verification and you’ll have to prove the legitimacy of each expense. Other examples of such claimable expenses may include telephone, stationery and employee costs.
Be sure to keep all your relevant invoices and receipts handy and include the amount under other deductions in your annual tax return.