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Tax Breaks For All
Posted 21 April 2020
Primary, secondary, and tertiary rebates – depending on your age. A rebate is a set amount that SARS whacks off your total tax liability and basically represents the amount excluded by the minimum threshold to pay tax.
Primary rebate is for those under 65 years of age (on the last day of the tax year), the secondary rebate applies to those between 65 and 75 years old, and the tertiary rebate is added for those over 75 years old. Rebates are also cumulative meaning that if you’re 72 years old you’ll qualify for the sum of the primary and secondary rebate amount.
So, for example, the minimum threshold for tax payable in the 2018 tax year is R75,750 per annum (for those under 65 years of age). If you calculate 18% of R75,750 (which is the entry level tax rate), you get R13,635. This is the primary rebate amount and will be deducted off your tax liability after deductions have been processed.
The rebate amounts change from year to year and are updated in the annual budget speech.
How to Get It? You needn’t do anything. Your applicable rebate will be automatically applied when SARS run your annual return for assessment.
2.Saving for Retirement
Contributions to pension, provident or retirement annuity funds. Up to 27,5% of annual income (to maximum of R350k) and no more than the actual contributions made.
For example, if Joe earns R228k and puts R2,375 away a month in a retirement annuity fund (way to go, Joe!) it means he’s saved R28,500 for the year. He may deduct the full amount as it’s below 27,5% of his annual income (which would be R62,700 for you non-maths whizzes out there). This means that Joe’s annual income, for tax purposes, drops to R199,500 saving him R7,410 in tax for the 2018 year (the difference in tax due between R228,000 and R199,500).
What’s important to note here is that saving for retirement shouldn’t be done purely for a tax saving benefit - because you’re putting more away than what you’re getting back in tax – but the long-term benefits of having private retirement funding is certainly going to see you being comfortable in those golden years, and that’s a great thing.
In order to claim this tax break, you’ll need to have proof of your retirement contributions by way of a certificate called a RAF Contribution Certificate. (This is issued by the financial house you’re saving with) or shown as a deduction on your IRP5 from your employer (if they’re paying it on your behalf as a part of your overall remuneration). Note however, that you will need the tax certificate from Investment house to claim the deduction for RAF contributions – IRP5 won’t be sufficient.
Medical aid contributions attract a tax credit (I’ll explain in a bit) while medical expenses may also attract an additional tax credit (if they are above a certain threshold) and are, subject to a rather complicated formula!
If you’re contributing to a private medical aid fund, which is registered and recognised by SARS, you’ll qualify for a set monthly tax credit for each month paid. The amount credited against your tax liability is dependent on how many members are on your medical aid that you’re paying for. Note that the tax credit applies only to registered medical aid funds – medical insurance or hospital cash-back policies don’t count. (Although if you can’t afford a medical aid – one of those aren’t the worst idea around.)
A tax credit is slightly different from a tax deduction though, the credit gets taken off the tax you owe and not used to work out how much tax you owe. So if after you work out how much tax is owing to SARS and then you take off how much you have already paid in PAYE and there is still an amount left over, the credit will reduce this. If you owe SARS nothing before the credit is applied, then SARS doesn’t give you the money back in cash, it just falls away.
Make sure that you have a certificate from your medical aid provider indicating your monthly contributions as well as the number of members per month for the tax year. They generally send these out on email before filing season opens.
As for additional medical aid expenses, there’s a rather massively-complicated formula that SARS uses to work out your qualifying amount allowed as an additional medical expenses tax credit. The calculation takes into consideration both your medical aid contribution amount that exceeds 4 times the medical aid tax credit given, as well as qualifying medical expenses* that you’ve personally paid or that haven’t been refunded by your medical aid. Together, this amount must be more than a certain percentage of your overall annual taxable income before SARS will use a portion towards what they call the additional medical aid expenses tax credit. If this already sounds too complicated then the best way to check this out (without doing your head in with maths equations) is to use TaxTim’s online Medical Aid Tax Credits Calculator. You’re welcome!
*Qualifying medical expenses include items like consultation or service fees for doctors, specialists, dentists, physiotherapists, psychologists, chiropractors, radiologists, homeopaths, acupuncturists, and pathology. They’ll also allow for any medication that is prescribed and supplied by a pharmacist (no over the counter vitamins, headache tablets or cough syrups here).
If you’re going to be claiming these medical expenses 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.
4.Giving to Charity
Have a soft spot for a puppy haven? Or perhaps a safety house for abandoned children tugs at your heartstrings more? What about contributing to the lifesaving efforts of the national sea rescue institute? 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 Organisation 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).
5.Wear and Tear (Depreciation) on Personal Devices for Work Purposes
The work environment is changing and these days many salaried employees make use of personal devices for work purposes. 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.
Depreciation rates vary from device to device, i.e. a laptop will depreciate at a different rate than a mobile phone. TaxTim offers a handy online wear and tear calculator to determine the depreciation amount you can claim per device.
6.Home Office Expenses
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 to that space. These include: • Rent • Rates • Electricity • Maintenance (repairs – note: not cosmetic improvements)
A very important note on this claim is that the amount has to be proportional to the space used. In other words, if your house is 100m2 and the office is 10m2, this means you’re allowed to claim up to 10% (100m2 / 10m2) of costs that are attributed to the entire home. You’ll need to have accurate records of all your expenses to substantiate your claim.
Home office expenses can be a tricky one to justify so check here to see if and what you qualify to deduct.
How to Get Them? In your annual tax return, simply include the deductions in the appropriate sections and ensure you have all the documents to back up your claim.
Who? Commission Chasers (More than 50% of total remuneration must be derived from commission)
Salaried employees who have express permission from their employer to work from home.
What? All Above Deductions PLUS
7.Business Travel Expenses
If you’ve racked up the km’s on your vehicle due to travelling for business purposes (no, this doesn’t mean getting to the office from home and back every day), and you haven’t been reimbursed for such from your employer, you may be able to claim travel expenses where you can prove that the mileage was directly related to earning your income. For instance, travelling to a business meeting where you presented your products or services to a potential new customer.
Often, we see commission earners (and even some salaried folks) receive a travel or car allowance as part of their remuneration package. In these cases, travel expenses must be accounted for and submitted to SARS as part of the annual return.
To claim travel expenses as a tax deduction, you’ll need to keep an accurate, detailed logbook of all business-related travel and incurred maintenance expenses, such as petrol, oil, service costs and even 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 absence of a logbook, your claim may be refused, or SARS will use a default calculation to determine your permitted claim amount.
How to get it? Select the option to claim travel expenses when setting up your annual return and ensure you have all supporting documentation, invoices and most especially your logbook handy. You can also check whether claiming actual costs or deemed costs will be most tax efficient for you here.
8. Costs Incurred in the Pursuit of Income
This is a rather broad category and could include anything from purchasing stock to paying for coffee and parking while attending a business breakfast. 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.
How to get it? Be sure to keep all your relevant invoices and receipts handy and include the amount under other deductions on your annual tax return.
Who? Entrepreneurial Souls (i.e. Sole Proprietors who operate unregistered businesses in their personal capacity – this includes the likes of freelancers, moonlighters, tradesmen, independent contractors, or online shop owners)
All Above Deductions PLUS- all business running costs incurred in production of income are deductible. These would include accounting fees, membership payments to professional organisations that are in line with your business’s trade, office running costs, salaries to any employees, etc.
SARS even allow some special claims for certain assets or research done, these get quite complicated and mostly don’t apply. If you are unsure, TaxTim’s Helpdesk is readily available with answers and assistance.
Depreciation on Devices, Equipment and / or Furniture Used for Business Purposes
Depreciation rates vary from device to device, i.e. a laptop will depreciate at a different rate than a mobile phone. TaxTim offers a handy online calculator to determine the depreciation amount you can claim per device.
How to get it? You’ll need to firstly include your income earned as a sole proprietor in the local business section of your annual tax return, and then add your deductions in their relevant places, e.g. travel costs and other deductions. You’ll need to have accurate records of all your income earned and costs incurred, this means keeping all those receipts and invoices and preferably having a spreadsheet for the tax year providing a detailed account of the financials relevant to your business.
Who? Landlords (i.e. Renting out property)
What? Certain Costs Associated with the Rental Property
Maintaining a property for rental purposes is a costly affair. Thankfully, there are several costs that can be claimed as tax deductions. If you add up your taxable income (basically profit) from rental, interest, dividends, and foreign dividends and this is more than R30,000 per year, you’re required to register as a provisional taxpayer.
Costs that can be claimed include:
- Interest on bond payments (note: not the full bond instalment)
- Rates and taxes paid on the property
- General maintenance and repairs costs such as:
o Garden services
o Structural repairs and painting
o Cleaning services (if this is provision of rental)
o NOTE: Cosmetic upgrades are excluded
- Advertising and / or rental agency fees
- Losses as a result of the rental property
How to get it? Keep records of expenses related to the rental home(s) and include these in the rental income section of your annual tax return. In the case where a loss has been made, SARS will ask whether you’d like to ringfence the loss for the next year. This will mean that the loss will be carried over and deducted from any profit made in the following tax year from the same trade, e.g. rental income. In some instances, however, SARS may choose to either ringfence or not on your behalf. If you are unsure, please check out the simple decision tree for ringfencing losses.