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Tax guide for salary earners (IRP5)

Posted under Guides

Introduction

Tax is compulsory for most people. No if’s or but’s. And besides, this deduction from your salary each month (which is paid to SARS), goes towards the development & management of our country. Important things like basic education, water & sanitation, hospitals, the police force, the upkeep of our roads & street lights – are all items that your tax payments go towards funding. But which income of mine is taxable? Here are some examples:
  • Remuneration, i.e. income you get from being employed. This includes salaries, wages, bonuses, overtime pay, taxable (fringe) benefits, allowances and certain lump sum benefits
  • Profits from a business or trade
  • Income or profits that you receive from being a beneficiary of a trust
  • Director’s fees (if you’re the Director of a company)
  • Investment income, such as interest and foreign dividends (after exemptions)
  • Net rental income on any properties you own (i.e. after deducting rental expenses)
  • Income from royalties
  • Annuities
  • Pension income
  • Certain capital gains, like when you sell a property or investment



Do I need to pay tax?

You’re required to pay income tax if your taxable income for the tax year exceeds: For the 2020 year of assessment (1 March 2019 - 28 February 2020)
  • R79 000 if you’re younger than 65 years old.
  • If you’re 65 years old or above, the tax threshold (which is the amount above which income tax becomes payable) increases to R122 300.
  • For taxpayers who are 75 years and older, this threshold is R136 750.
  For the 2019 year of assessment (1 March 2018 - 28 February 2019)
  • R78 150 if you’re younger than 65 years old.
  • If you’re 65 years old or above, the tax threshold (which is the amount above which income tax becomes payable) increases to R121 000.
  • For taxpayers who are 75 years and older, this threshold is R135 300.
  For the 2018 year of assessment (1 March 2017 - 28 February 2018)
  • R75 750 if you’re younger than 65 years old.
  • If you’re 65 years old or above, the tax threshold (which is the amount above which income tax becomes payable) increases to R117 300.
  • For taxpayers who are 75 years and older, this threshold is R131 150.



What kind of taxpayer am I?

I am a provisional taxpayer

Not sure if you’re a provisional taxpayer or not? There are a few aspects that make you a provisional taxpayer, including owning your own sole proprietor or freelance business – use our handy tool to see if you are one or not. If you’re a provisional taxpayer and have not registered as a provisional taxpayer, then you need to do so asap! If you’re registered on eFiling you can amend your tax type online:

  • Go to your eFiling profile
  • Under the tab "User", click "Request tax type"
  • Insert your tax number under the provisional IRP6block
  • You’ll need to complete an ITR12and two IRP6 returns every year

Learn all about provisional tax here (and don't worry if it sounds overwhelming, TaxTim will ask you all the right questions, so that you complete your tax return correctly).

I am a regular taxpayer (i.e I earn a salary and am a non-provisional taxpayer)

This means that you don’t need to register for provisional tax and you’ll submit only an ITR12 return each year. Let TaxTim help you complete your tax return correctly and get your maximum allowable tax refund. Sorted.




How do I calculate my earnings after tax?

If you're an employee, you probably negotiated your salary based on the gross amount (or cost to company) - which is the whole amount paid by your employer. Since income tax is deducted from this gross amount, often taxpayers don't know the net amount that will clear into their bank account each month. And this is important, for so many reasons.

SARS charges an employee tax monthly and employers must pay that amount over to SARS every month. This tax is called PAYE (Pay As You Earn) and it's calculated based on your taxable income. Your employer keeps the PAYE from your salary and pays it over to SARS on your behalf.

This is different to your gross income and is calculated as follows:

Taxable income = Annual gross salary - Pension / Provident / RAF (limited to 27.5% of salary, limited to R350k) - 20% of travel allowance 

Sometimes your gross salary includes a pension fund contribution (for when you retire) and a travel allowance too (to help you pay for work-related transport). SARS does allow you to deduct your retirement fund contributions up to a certain limit from your gross salary. Only 80% of your travel allowance is included in taxable income, so we therefore also subtract 20% to calculate this value.

Your tax rate 

Once you know what your taxable income is, you need to look at the SARS tax tables to find the income tax bracket that you fall into (your tax rate). People have different tax rates based on how much they earn: higher earners fall into higher income tax brackets than lower income earners, meaning that they pay a larger portion of their salary or income over to SARS.

Try the above calculation on your own and then look at the SARS website for their tax tables, or just use our easy income tax calculator which does all the difficult calculations for you.

Want to see how much money is actually arriving in your bank account each month? Try work it out today so you can budget better and get a handle on your financial affairs.



Tax deductions

For most people who earn a salary from their employer, they have already paid their taxes in the form of Pay-As-You-Earn (PAYE). Although salaried employees are limited by tax law in terms of what they can deduct from their income, there are a few things that can be claimed back, reducing how much tax you owe to SARS. These allowable tax deductions are:

  1. Retirement fund contributions: Your contributions towards retirement funds are tax deductible up to a limit of 27.5% of whichever is greater: your taxable incomeor 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, not the 27.5% taxable income limit.
  1. Travel: Depending on your type of remuneration structure, you may be able to claim a travel deduction. Remember that you must keep an accurate and detailed logbook of all business travel, as well as a record of your vehicle expenses. The opening and closing km's for the tax year,as well as all the km's you travelled purely for business reasons must be recorded. Also keep the purchase contract which reflects the details of the car you’ve used.
  1. Donations paid to registered Public Benefit Organisations (PBOs). These are donations you’ve made to registered Public Benefit Organisations, which are tax deductible up to a maximum of 10% of your taxable income. Any disallowed donations exceeding this threshold can be carried forward and deducted the following year, subject to the same limit.Remember 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).
  1. Wear & Tear on assets used for work. These include things like computer equipment, mobile phones and machinery (not your car). The work environment is changing and these days many salaried employees use personal devices for work purposes like 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.Check out our handy online Wear and Tear calculator to see the SARS approved rates.
  1. 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 may be able to claim certain running costs associated with that space. Home office expenses can be tricky to justify, so check here to see if and what you qualify to deduct.
  1. Amounts refunded in terms of s11(nA) and s11(nB)This is a less commonly claimed deduction that is only applicable under certain circumstances. An example would be if you were in breach of an agreement with your employer and were asked to pay back a benefit you received from them like a bonus, maternity leave benefit or bursary.If this amount has already been taxed, it would be included as income on your IRP5. In this situation, you could claim the s11(nA) and/or s11(nB) deduction in order to deduct the benefit from taxable income, and therefore reverse the tax that you already paid on it.
  1. Legal costsYou may claim legal expenses incurred for any claim that is directly related to your salary package, such as a CCMA case where the claim will, as a result of a court order, be included in your income. Another example would be an out of court settlement in terms of a labour dispute. Remember that in order to claim the legal expense and get a tax deduction, the related income must be included in your taxable income and therefore have been taxed.
  1. Bad debtsA bad debt is an amount that you were due to receive as income, but never did. This may happen if you leave your company before your bonus is paid to you, for example. In order to claim a bad debt expense, the amount that was due to be paid to you, but was never received, must reflect on your IRP5. In this situation, you could claim a bad debts expense in order to reverse the tax that was charged on the bonus that you never received.If you’re a salaried employee, s23 (m) of the Tax Act limits the deductions you can claim to the ones we’ve mentioned above (there may be a few more, but they are very obscure). So, when completing your income tax return and planning for your future financial wellness, it’s important to remember what items you may be able to deduct or claim.
  1. Medical expensesMedical expenses are treated differently to the tax deductions discussed earlier, in that they are not deducted directly off your taxable income. Instead, a portion of your qualifying medical related spend is converted to a ‘tax credit’, an amount which is deducted from your overall tax liability (the amount of tax you have to pay SARS).

The medical tax credit is made up of two parts:

  1. Medical aid contributions: For those of you that contribute to a medical aid or hospital plan each month, you will receive a Medical Tax Credit or MTC. This is a fixed monthly tax credit for each member on your policy, which is deducted from your personal payable tax. As of tax year 2020, a South African tax payer is permitted a medical tax credit (MTC) of R310 for the primary member, another R310 for the first adult dependant and an additional R209 for each dependant after that.To claim: You will need your Medical Tax Certificate to claim for medical aid contributions – you are usually sent this by your medical aid.It’s important to know that this tax credit applies only to registered medical aid funds – medical insurance or GAP cover don’t count.
  1. Out of pocket medical claims: These are for ‘qualifying’ expenses that you’ve paid for yourself, which have not been reimbursed from your medical aid. Qualifying medical expenses include all consultations with medical practitioners, as well as doctor prescribed medication.SARS applies a complicated formula to determine your ‘additional medical expenses tax credit’ which you may receive as a result of the out-of-pocket expenses you’ve incurred. The formula they use depends on your age and if you or your dependents have a disability.If you’re disabled or 65 years and older, you will receive an ‘additional medical expenses tax credit’ for all of  your ‘out-of-pocket’ claims, provided you have all the relevant documentation as back-up. If you’re suffering from a disability, make absolutely sure that you have completed an ITR-DD form which has been signed off by your doctor within the past five years.Taxpayers who are under 65 years old and have no disability, will only receive the ‘additional medical expenses tax credit’  for out-of-pocket claims, if their total qualifying medical expenses are greater than 7.5% of their total income.To claim: To claim for out-of-pocket expenses, you’ll need to keep all the relevant documentation i.e invoices and receipts. This documentation is proof you’ve incurred these out-of-pocket medical expenses and SARS has every right to request to see them, so make sure you file them somewhere safe. Without the supporting documentation, you have no claim!



Why should I file my tax return?

SARS has announced that if you earn less than R350,000 a year, and fulfil a series of complicated criteria, you may not have to file a tax return. However, it’s extremely important to understand this properly, because if you don't, you may be fined heavily in future. Here are five reasons why you should not skip filing your tax return this season:

    1. You miss out on your refund.Why let SARS hold on to your money if you’re owed a refund? If you’ve overpaid on your taxes, this money belongs to you. However, you can only be paid a refund if you file a return! Something as simple as claiming medical expenses or working two jobs can trigger a tax refund, depending on your financial situation. Have a question?? Try our refund calculator.
    2. You may not be able to borrow money.We all need to borrow money sometimes. If you need to take out a mortgage for a new home, get a loan to start a business or pay for your child’s education for example, you may need a Tax Clearance Certificate. You can only get this if all your returns are up to date and filed properly.3. SARS might change their minds.If you normally submit a tax return, but this year you don't, SARS could make you pay administrative penalties in future, because you were not compliant.
    3. ‎You may not be able to access your retirement savings.Filing a tax return every year means that if you receive a payout from a fund, then you will receive that money without hassles or hold ups. If you retire or are retrenched, or just need to take money out of your fund early for some reason, you need to be tax compliant.
    4. A complete record stands you in good stead.Having an unbroken filing record gives SARS officials no reason to suspect that you’re hiding information from them, which sometimes triggers an audit the following year. Filing a tax return also means that you’re being a good citizen and contributing towards society!



When should you submit your tax return (ITR12)?

21 September: for all manual submissions at a SARS branch (provisional and non-provisional taxpayers) 31 October: digitally via eFiling (non-provisional taxpayers) 31 January: digitally via eFiling (provisional taxpayers) If you don’t submit your income tax return on time, you may be liable for penalties. SARS can charge an administrative penalty which can range from R250 to R16,000 per month, or R3,000 to R192,000 per year. It does appear though (at the moment), that SARS is issuing smaller penalties ranging between R500 and R2000, but we never know when this could change. The simplest way to avoid SARS issuing a penalty for outstanding returns would be to file your tax return each year, well before the deadline. Rather be safe than sorry.


How to submit your tax return

Once you have a SARS issued tax reference number (this will be a 10 digit number starting with a 0,1,2 or 3) you can get started using TaxTim. Here’s how:
      • Visit www.taxtim.com/za and register
      • Answer our simple questions about your tax year
      • Let us fill in your tax return for you instantly
Now that you’ve completed your tax return, there are three simple ways to submit it to SARS: 1: Easy one-click filing
      • If you used TaxTim to complete your tax return, benefit from quick and easy one-click electronic filing, sending your return straight to SARS (we’ll do it for you!)
2: Submit online via the internet and eFiling
      • Haven't registered for eFiling yet? Read how to register for SARS eFiling.
      • Log on to your eFiling profile and open the correct ITR12.
      • Not sure how to make your way around the eFiling system? Try our easy SARS eFiling guide.
      • Copy everything from the tax return we generated into your blank ITR12 on eFiling.
      • Complete any missing personal info (see our security policy).
      • File your tax return on eFiling and it will be sent to SARS.
      • Wait for feedback regarding the status of your tax return and any applicable refunds.
3: Manually submit in person
    • Print the tax return that TaxTim generates for you.
    • Ask SARS to generate an ITR12 tax return for you (which contains a personalised barcode). They can send it to you by post, or you can get this in person from your nearest SARS office.
    • Copy the information across from the printed copy to your tax return. Fill in the missing personal/company information (see our security policy).
    • Deliver this in person to your nearest SARS office and keep a record of your confirmation number.
    • Wait for notification of any refund if applicable.


Supporting documents

Below is a list of documents you’ll need to retain for your records in order to support the amounts on your tax return and submit it to SARS. It’s important that you keep these documents for at least five years from the date you receive your tax assessment (ITA34), as you may be audited.

IRP5

An IRP5 is an employee’s tax certificate that will be issued to you at the end of each tax year detailing your salary, benefits, deductions and related taxes. All of this information needs to be reflected on your tax return.

Other income certificates or documentation

These include certificates you received for local interest income you earned. They are called IT3bs and you usually receive them from the bank or the institution where you have your money invested. Any other documents relating to income received or accrued, like remuneration that hasn’t been reported to SARS by your employer (i.e investment or rental income), also need to be filed in a safe place.

Medical aid tax certificate/s

This certificate details exactly how much you paid to the medical aid for yourself and your dependents over the course of the tax year (1 March to end Feb). It also details how much money you paid for other medical expenses, such as medicines and doctors’ expenses, which you claimed for, but your medical aid did NOT cover. This information is important for your tax return and the information included can improve your chances of getting a tax refund when you submit. Read more about Medical Tax certificates and where to find them here

IT3(f) - retirement annuity contribution certificate

This is a certificate issued by your retirement fund administrator that confirms the contributions you made to the fund during the tax year. They are only relevant for Retirement Annuity funds (and not Pension or Provident Funds). The amount of contributions you can claim will depend on your particular circumstances and the level of income you earn. You should include the total contributions as reflected on your tax certificate in your tax return and SARS will calculate how much you can claim. They will also carry forward any contributions, and set this off against future income, if permitted.

Travel claim

These include a detailed logbook and other documents related to business travel expenses (if the travel allowance is part of your remuneration or if you have the right to use a company car taxable benefit), as well as your vehicle purchase contract.

S18a donations tax certificates

This is a certificate issued by the PBO which reflects their PBO number, as well as the date and amount of the contribution you made.

Wear and tear

To claim this expense, you need a letter from your employer stating that you can use the asset (e.g. laptop) for work purposes, proof of purchase (i.e. invoice) and lastly, a calculation showing how the wear and tear was calculated and apportioned between business and personal use.

Home office

To claim this expense, you’ll need the actual invoices to support the claim (e.g. electricity and water, rates, bond mortgage statement or rental invoice), as well as a calculation showing how the apportionment was calculated.

What do I do if I didn’t receive an IRP5?

Your employer should issue you an IRP5 after the end of the tax year. If, however, you don’t receive an IRP5 and no amount of pleading with them will help, don’t give up on completing your tax return. There are a few reasons why some people may find themselves without their IRP5, as well as what you can do about it:
  1. You work overseas for a foreign employer.If you work overseas for a foreign employer and no tax has been deducted from your salary in South Africa, you will not receive an IRP5. This is because an IRP5 is only issued by South African employers to employees who pay tax in SA.What to do: If you qualify for the foreign employment income exemption (i.e you pass the 183 day/60 continuous day test) then your income should not be taxed in South Africa. Read more about the foreign employment income exemption here. But you should still declare this foreign income in your Tax Return (ITR12) so that SARS has a complete view of all of your earnings. Go to TaxTim’s menu option “Amounts non-taxable” and declare the foreign income amount and description here. Or, if you’re completing your return in SARS eFiling, tick the opening wizard to indicate you received non-taxable income and fill in the details in the correct section. If you don’t qualify for the foreign employment income exemption, then this foreign income should be taxed in South Africa. Find TaxTim’s menu option called “Foreign Income” and declare the income amount and related foreign tax withheld here. In SARS eFiling, tick the opening wizard to indicate that you received foreign income and fill in the details in the relevant section. It’s important to know that any tax paid in a foreign country will be off-set against tax to be paid in South Africa.
  1. You work for a foreign employer in South Africa who doesn’t withhold tax.If you’re based in South Africa but work for a foreign employer who isn’t registered with SARS, no tax will be deducted from your salary in South Africa and you won’t receive an IRP5. This is because an IRP5 is only issued by South African employers to employees who pay tax in South Africa.What to do: Remember that if you haven’t had monthly tax taken off your salary, then you won’t receive an IRP5. Instead you should actually be paying provisional tax twice a year. Whether you have paid provisional tax or not, you should navigate to TaxTim’s menu option called “Other Income” and declare your earnings here. In SARS eFiling, tick the opening wizard to indicate you received “Other Taxable Receipts and Accruals” and fill in the details in the relevant section.
  1. You contract for a company who does not deduct tax from your salary.If you are self-employed (i.e an independent contractor or a freelancer) then no tax will be deducted from your salary and you will not receive an IRP5. What to do:Just like the previous scenario, you should be paying provisional tax twice a year. You need to navigate to TaxTim’s menu option called “Self-Employed, Independent Contractor, Freelancer” and declare your earnings here. If you’re completing your return in SARS eFiling, tick the opening wizard to indicate you received “Local Business Trade and Professional Income” and complete the details in the right section. Look at our decision tree to figure out if your employer is classifying you correctly as an independent contractor, or if they should actually be deducting monthly tax (and sending you an IRP5).
  1. Your previous employer has shut down and there’s nobody who can help you get your IRP5.What to do:You can check on your SARS eFiling profile to see if your IRP5 has been submitted to SARS (this should have been done by your previous employer). Do this by requesting your Tax Return in eFiling and it will hopefully already be filled in with your IRP5 details. Use these details to complete the “Salary/IRP5/IT3a/Pension income” section of TaxTim manually (unless you chose the import option upfront, in which case this step won’t be necessary). If you really can’t find it anywhere online, head to the police station and swear an affidavit stating that you’re not able to obtain your IRP5 and include the relevant reasons. You’ll then need to go to SARS in person and submit this affidavit, along with your payslips/proof of earnings for the year. There a consultant will be able to help you complete your tax return. If you don’t receive an IRP5 for any other reason and are still confused how to report your earnings in your Tax Return, please contact TaxTim’s helpdesk and we’d be happy to help!


FAQs

Have a question? Check out our FAQs, as this may be the simplest and quickest way to resolve your query.

What is an IRP5? An IRP5 is the employee's tax certificate that is issued to him/her at the end of each tax year, detailing all employer/employee related incomes, deductions, and related taxes. The employee uses it specifically to complete his/her income tax return for a specific year.

Do I need an IRP5? Yes, you do if you were employed during the tax year. It is your employer’s responsibility to provide you with an IRP5 each year.

What if I’m no longer employed by the company I need my IRP5 from? Even if you no longer work for a previous company, they should still give you an IRP5 in June of the year you’re submitting the tax return for. If they haven’t given you one, you need to contact them to get it.

SARS needs an IRP5 which I never received - what must I do? If SARS asks for this (but you really don’t have it), go to the police station and swear an affidavit stating that you’re unable to retrieve your IRP5. Take this with you into a SARS office, where they will submit your return for you. You can also upload this onto eFiling.

 Can I submit a return without an IRP5? Yes you can, however SARS might request that you send them your IRP5 if they decide to review your tax return.

 Can I find my IRP5 form online? You can check on your SARS eFiling profile to see if your IRP5 has been submitted to SARS (this should have been done by your employer). Simply request your Tax Return and it will hopefully already be populated with your IRP5 details.

 Is there an expiry date of IRP5? Your IRP5 can never expire, as it’s just a summary of all your payslips for the working year.

 Is the number on my IRP5 a valid tax number or should I register? There may be a number on your IRP5 beginning with a 0,1,2, or 3 - that is your ten-digit reference number.

 When is the right time to submit my IRP5? You should file your return as soon as possible if you’re due a refund. Tax season runs between July and October each year for the tax year which ends the previous February.

 What is the maximum number of IRP5's that can be submitted through eFiling per year? On the eFiling wizard page (the first page), enter the number of IRP5s that you have in the number entry box. Then when you click the button to generate your tax return form, there will be multiple empty IRP5 documents waiting for you to fill in. Don't worry about adding up amounts or trying to combine multiple numbers into one – you need to include each IRP5 separately on your single ITR12 tax return for the year, so just do one at a time.

 My IRP5 is wrong, how do I fix it? You need to contact the company you worked for and ask them to reissue the correct document, both to you and SARS. If it includes incorrect banking details, there’s no need for you to fix these on the IRP5, as you can amend them yourself on your tax return.

 What’s the difference between an IRP5 and an ITR12? An IRP5 is a summary of all your payslips for the year, while an ITR12 is the Income Tax Return for all individuals (including provisional taxpayers) for a particular tax year.

 Is this PAYE number the same as my Tax Reference Number? No, the PAYE number is your employer number and it begins with a 7. This is not the same as your personal tax number which starts with 0, 1, 2 or 3.

What do the source codes on the IRP5 mean? An IRP5 contains difference source codes for income, deductions and PAYE/UIF/SDL. Have a look here at what each individual source code means.

What does a tax directive number mean on my IRP5? A tax directive number is an instruction that SARS has to withhold or not deduct tax on the earnings you received. This is located on the bottom right hand side of the IRP5 usually and often begins with the number 2.

Do I need to put the medical credits on my IRP5 under the medical section of a tax return? No you don’t, this is different information and the medical section only asks for the number of members, the name of the medical aid and your contributions. The IRP5 contains the tax benefit in the form of a medical credit. There is no need to duplicate information.  




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