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The Complete Tax Deductibles Guide

Posted under Guides

Tax deductions for the employee

This may seem like a simple concept, but let’s make sure that we’re all on the same page as to who and what an employee is! An employee is any person (other than a company) who is paid by an employer for work performed. Generally, they will work full time for one employer and have no other jobs. 

 

GREAT! So, what is the meaning of remuneration, for tax purposes?

Remuneration is any amount of income which is paid/payable to any person whether in cash or other ways (e.g. fringe benefit) and whether or not for services rendered. 

Remuneration will include: salary, fee, bonus, wage, gratuity, pension, leave encashment, emolument, voluntary award, commission, annuity, stipend, overtime, superannuation allowance, retirement allowance, lump sum benefit payment, director's remuneration, etc. 

If you’re self-employed and running your own business, or working as a “freelancer” or independent contractor, then your earnings are not classified as remuneration and therefore you are not an employee.

Now that we know whether or not you fall into the category of Employee, let’s talk about how much moola you can earn before having to pay taxes!

Take a look at the table below to see how much you can earn, before having to pay tax. This is called the “Tax threshold”.

Tax Threshold Table

 

Tax Year

Person

2019

2018

2017

Under 65

R78 150

R 75 750

R75 000

65 and older

R121 000

R 117 300

R116 150

75 and older

R135 300

R131 150

R129 850

 

Now that you know whether or not you have to pay tax, lets delve into the different things you can claim back for, if you fall into the bracket of people that have to pay tax. If you don’t pay tax, then you can’t claim these things back.


Saving for Retirement

If you contribute to a pension, provident or retirement annuity fund, you’ll qualify for a tax deduction up to 27.5% of your annual income, limited to no more than the actual contributions you made. The tax deduction is capped at R350 000 per annum.

FOR EXAMPLE: If Joe earns R228 000 during the 2019 tax year, and saves R2375 per month in a retirement annuity fund (well done Joe!) it means he’s saved R28 500 for the year. He can deduct the full amount as its below 27.5% of his annual income (which would be R62 700). This means that Joe’s annual income, for tax purposes, drops to R199 500, saving him R7410 in tax for the year (which is the difference in tax due between R228 000 and R199 500). 

It’s important that you’re not just saving for retirement to enjoy a tax saving benefit (i.e you should be putting more away than what you’re getting back in tax). The long-term benefits of having private retirement funds are certainly going to see you being comfortable in those golden years, which is what we’re aiming for.


How do I claim this expense on my tax return?

Saving towards a Pension or Provident Fund is always done via your employer and therefore your contributions will reflect as a deduction on your IRP5. Your IRP5 is sufficient proof for tax purposes and you don’t need to do anything else on your tax return to claim these deductions.

However, a Retirement Annuity (RA) is a retirement fund for individuals who are self-employed, or whose employer doesn’t offer a RA benefit as part of their remuneration package. In order to claim this tax break, you’ll need to have proof of your retirement contributions in a certificate called a RAF Contribution Certificate. This is also known as an IT3(f). 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 your investment house to claim the deduction for RA contributions – if your employer pays it, your IRP5 won’t be sufficient.


Travel Expenses

If you’re receiving a travel allowance or the use of a car from your employer, you can claim the tax back for the kilometres you travelled for business purposes during the year.

To claim travel expenses as a tax deduction, you’ll need to keep an accurate, detailed logbook of all business-related travel and maintenance expenses like 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, plus the number of kilometres used for business and personal use. TaxTim provides a free mobi logbook app for all registered users. See more here.

How do I get this deduction?

Choose the appropriate option to claim travel expenses when setting up your tax return and complete the relevant section, which could be Travel Allowance or Employer Provided Vehicle. Ensure you also have the vehicle purchase contract, vehicle expense invoices and your logbook of course. If you receive a travel allowance, and are not sure whether claiming actual costs or deemed costs will be most tax efficient for you, check out this handy information.


Donations

Donate to a literacy charity each month? Or perhaps it’s a safety house for abandoned children that needs your financial help? If you’re contributing to the welfare of our country and supporting a charity, you’ll be pleased to know that any donations made to a registered Public Benefit Organisation (PBO) are tax deductible, up to a maximum of 10% of your taxable income. Any disallowed donation exceeding the threshold can be carried forward to the following year and deducted then, subject to the same limit. Remember that just because something is a non-profit organisation, doesn’t always make it a PBO. So, check with the organisation you’re giving money to if they’re allowed to issue you with a PBO certificate (S18A).


How do I get this deduction?

Complete the Donations section in your tax return. As we mentioned before, SARS will only allow the deduction if the charity you’re donating to has a PBO number and has sent you a tax certificate for your donation (a section 18A certificate).

 

Wear and Tear

(Depreciation) on Personal Devices for Work Purposes 

The work environment has changed. These days many salaried employees use personal devices like laptops for work purposes. If you’re using a device bought 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 requires a letter from your company stating that you have permission to use the device for work purposes, and that they’re not compensating you with an allowance for it.

Depreciation rates are different from device to device. For example, a laptop will depreciate at a different rate to a cellphone. TaxTim offers a useful online wear and tear calculator to figure out the depreciation amount you can claim per device.

How do I get this deduction?

Enter the depreciation amount in the ‘Other Deductions’ section of your tax return. Ensure that you have the purchase invoice for the asset (e.g laptop invoice), the letter from your employer and a calculation explaining the expense. For the calculation, just use the output from our Wear and Tear Calculator!

Please note that you can’t depreciate your car if you are an employee, as this deduction is only available for small assets used for work.


Home Office Expenses

If you’re a salaried employee but work mainly from home in a specifically dedicated space (like a study or office that isn’t used for any other purpose), you may be able to claim certain running costs associated with that space.

These include:

  • Rent
  • Rates
  • Interest on mortgage bond
  • Depreciation on office equipment
  • Electricity
  • Maintenance (repairs – not cosmetic improvements)

But you can’t claim all of your electricity expenses for example - the amount has to be proportional to the space used. For example, if your house is 100m2 and the office is 10m2, this means you can claim up to 10% (10/100) of costs that are attributed to the entire home. You’ll need to have accurate records of these expenses to prove 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 do I get the deduction?

Enter the home office expense amount in the ‘Other Deductions’ section of your tax return and ensure you have all the documents to back up your claim.



 

The Commission Earner

Do you work mostly on commission? This applies to you if your commission income exceeds 50% of your total remuneration. This means that on your IRP5, your income from source code 3606 should be greater than 50% of source code 3699. So, more than half of your earnings must be from commission. Commission earners get all the same deductions that apply to an employee, PLUS:

Business Travel Expenses

If you travel loads of kms in your vehicle for business purposes (we don’t mean simply getting to the office and back!), and you haven't been reimbursed for this by your employer or received a travel allowance, you could claim travel expenses, as long as you can prove that the mileage was directly related to earning your income. For example, travelling to a sales meeting where you pitched your services to a potential new client.

To claim travel expenses as a deduction, you must keep an accurate, detailed logbook of all business-related travel and incurred maintenance expenses, like petrol, oil, service costs and insurance. SARS will want to see 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,) and the make, model, year and value of your vehicle, as well as the number of kilometres used for business and personal use. Find out more about our logbook.

Tip: If you don’t have a logbook and actual proof of expenditure, your travel claim will be refused.

How do I get the deduction?

Commission earners can claim their travel expenses in the ‘Other Deductions’ section of the tax return. Make sure you have the vehicle purchase contract, vehicle expense invoices and most especially your logbook handy.

 

Costs Incurred in the Pursuit of Commission

This is a rather broad category and can include anything from buying stock to paying for parking while attending a work lunch. The rule of thumb is that in order to claim, you must have incurred expenses that directly relate to earning your income. NO personal expenses can therefore be claimed as a tax deduction.

If you’re buying products at a wholesaler to then sell on to a client (in order to make a profit), your input costs are clear. It starts becoming a bit harder to quantify when you submit claims for expensive lunches and tickets to the rugby with a client. Be aware that in these cases, SARS may flag your return for verification, and you’ll have to prove how legitimate each of these expenses was.

 

How do I get the deduction?

Keep all of your relevant invoices and receipts handy and include the amount under ‘Other Deductions’ on your annual tax return.

 

 


Entrepreneurs & Small Business Owners

Calling all entrepreneurial souls out there! These are Sole Proprietors who operate an unregistered business in their personal capacity – these include freelancers, moonlighters, tradesmen, sole proprietors and independent contractors.

For entrepreneurs & small business owners, you get all the same deductions discussed already PLUS:

Business Running Costs

All business running costs you incur in producing your income are deductible. These can include accounting fees, membership payments to professional organisations (in line with your business’s trade), office running costs or salaries to employees, among others.

SARS may even allow special claims for research and development and various other allowances. These can get complicated, so use TaxTim’s Helpdesk if you have any questions. 


Wear and Tear

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 to a cellphone. TaxTim offers a handy online calculator to determine the depreciation amount you can claim per device.

 

How do I get the deduction?

Firstly, you’ll need to include your income you earned as a sole proprietor in the local business section of your annual tax return. Then, add your deductions in their right places, e.g. travel costs, insurance, entertainment etc. You’ll need to have accurate records of all your income earned and costs you incurred. So, keep all of those receipts and invoices, and maintain a detailed spreadsheet for the tax year, listing all your income and expenses.

 


 

Property owners

If you own a property which you rent out to someone else for extra cash, this section applies to you. Certain costs associated with a property, like maintaining a property for rental purposes, are very costly. Thankfully, there are several costs that can be claimed as tax deductions.

Costs that can be claimed include:

  • Interest on bond payments (note: not the full bond instalment)
  • Rates and taxes paid on the property
  • Water and electricity
  • Levies
  • Depreciation on furniture in the property (use our handy wear and tear calculator)
  • Advertising and/or rental agency fees
  • General maintenance and repairs costs like:
    • Garden services
    • Repairs and painting
    • Cleaning services

TIP: Renovations which increase the income earning capacity of the property are regarded as capital expenditure, and therefore won’t be deductible against income for tax purposes e.g. adding on a brand new bedroom.

In the case where you’ve made a loss; SARS will ask whether you’d like to ring-fence the loss for the next year. This means that the loss can’t be offset against other income (like your salary) in the current year, but instead, it will be carried over and deducted from rental profit made in the following year. In some instances, SARS may choose to either ring-fence it or not, on your behalf. If you’re unsure, please check out our simple decision tree for ring-fencing losses.

How do I get the deduction?

Keep records of expenses related to the rental property(ies) and include these in the rental income section of your annual tax return. Remember to keep all invoices too.





FAQs

Can I depreciate my car for tax purposes?

If you’re trying to claim the depreciation allowance (wear and tear), then no, you won’t be able to depreciate your car. This only applies to small assets like laptops and cell phones.

I am self-employed and I buy clothes for work, can I claim this as a tax deduction?

In very limited circumstances you can claim for work clothes, although this only really applies to models or similar occupations. Having to dress up formally as an employee typically does not count towards a tax deduction.

Can I claim the cost of my kid’s school fees?

No, you may not, the cost of education is unfortunately not a tax deduction.

My company sends me to other cities and towns for work, can I claim any money or a tax deduction?

If you’re away for more than one night from your home for work purposes, then your company can pay you a set rate each day for this. You won’t pay any tax as long as they pay you the SARS daily rate. You can read more about subsistence allowances here.

I bought a car to use from and to work, can I claim the instalment and fuel if I don't receive an allowance?

If you received a travel allowance you could have claimed a deduction for your travel to and from clients (not from your home to the office), but you unfortunately can't claim for any travel without an allowance.

I stay with my Mom, can I claim the interest on her bond as a deduction for my home office expenses? I don't pay to stay with her.

You unfortunately can't claim a tax deduction for an expense that you didn’t personally incur or pay yourself.

I buy and donate school clothes for the kids in my community, how much will my deduction be?

The children in your community are unfortunately not registered PBOs, so SARS won't give you a tax deduction for this.

I save in a separate bank account for my retirement, will SARS allow this as a deduction?

SARS unfortunately won't, as your money should be invested with an approved retirement fund.