Global Courant
South Africa is officially in tax season and there are several ways South Africans can reduce their tax bill.
Tax season begins today, July 7, 2023, at 8 p.m., and the South African Revenue Service (SARS) has already sent an automatic assessment to several taxpayers across the country.
While tax season is a stressful time and many hate the idea of filing their tax returns, there are multiple ways South Africans can claim reimbursement from SARS.
Crystal Venter and Monique Spray, tax experts at Tax Consulting SA, outlined six different ways in which South Africans can claim exemption from their tax bill – all perfectly legal and fair:
Donations
Donations to an 18A-approved organization engaged in public benefit activities are tax deductible – limited to 10% of taxpayer income.
However, if the donation exceeds the threshold of 10% of taxable income for the year in question, the rejected portion will be used the following year and the same limit will apply.
Venter and Spray said it’s important to note that not all nonprofits are S18A approved.
SARS sees the donation as deductible only if the organization is Section 18A certified.
To claim the refund, the taxpayer must complete the ‘Donations’ section on the ITR12 form.
Arrangement for medical assistance
Members of the medical assistance plan are eligible for tax relief through tax credits, which are then deducted from the taxpayer’s annual personal tax liability.
The discount is in the form of a ‘Tax Discount Health Insurance Scheme’ and applies to the monthly contributions of the main participant and surviving dependents.
There is also an ‘Additional Tax Credit for Medical Expenses’, which allows further relief by taking into account ‘Excessive co-payments’ and the ‘Qualifying deductible costs’.
In certain qualifying cases, an additional health insurance tax credit is also available if the taxpayer, their spouse or a dependent has a disability. Crucially, SARS requires the taxpayer to include with their income tax return a completed “Confirmation of Diagnosis of Disability” (ITR-DD form) form to claim the exemption.
When claiming an exemption, if the employers pay the contributions, the employers will use the credit system to reduce the employee’s monthly PAYE.
If the taxpayer pays the premiums independently, the monthly PAYE will not be adjusted and the credit will be claimed as a refund when the annual return is submitted through the ITR12 form with a valid medical aid tax certificate issued by the relevant fund.
Retirement annuities
Taxpayers who contribute to a pension fund are also entitled to tax deductions. This includes contributions to annuities, pension funds, and provident funds.
Total contributions to these funds are capped at 27.5% of higher pay or taxable income (excluding lump sums), capped at R350,000 per annum. Total employer contributions are also limited to these criteria.
Employees earning a monthly salary will have their employer’s contributions added to their compensation package as a taxable benefit, which also serves as a deduction. Essentially, the tax deduction will reduce the PAYE that is deducted from taxpayers’ paychecks each month.
If the pension fund’s total contributions are above the aforementioned threshold, the excess contributions carry over to the next tax year, which can be used to reduce the taxable portion of the taxpayer’s annuity or even reduce the tax they must pay . a cash payment in one go.
As for claiming the refund, if the contribution is made through the employer, these contributions will appear on the IRP5 tax certificate under the relevant source code and will be automatically taken into account by SARS.
However, if the contributions are not paid by the employer, the taxpayer must obtain a pension annuity tax certificate from the relevant institution and ensure that the ‘Pension Fund’ section is completed on the ITR12 form.
Home office
If the taxpayer is self-employed, earns a normal monthly income, and is primarily based at home, they can claim a deduction for their home office.
The deduction includes ongoing costs, such as, but not limited to, paid rent, water, electricity, levies and other fees related to the legal entity.
Crucially, the taxpayer must meet all of the following requirements:
A designated room in their residence, used exclusively for work purposes. The office must be set up specifically for the taxpayer’s work and must be specifically equipped with the relevant tools, tools and equipment required for the work.
If they do not meet all these requirements, they cannot claim an office discount.
To claim the exemption, taxpayers must first ensure that all of the above requirements are met and then calculate the total square footage of the home office relative to the total square footage of the property as a percentage.
The percentage is then applied to the home office expenses to calculate the deductible portion.
This deduction can be claimed on the ITR12 form under the ‘Allowed deductions’ section.
Tax-free savings account
Several financial institutions in South Africa offer taxpayers the option of investing their money in a tax-free savings account.
The difference between this and other investment accounts is that all returns are tax-free for the investor.
The annual contribution limit is R36,000 per annum and the lifetime limit is R500,000.
It should be noted that there is no limit on the number of accounts or the transfer of annual contributions. However, there is a 40% penalty that will be imposed by SARS if the annual or lifetime limit is exceeded.
In order to claim the exemption, taxpayers will obtain an IT3(s) tax certificate from the relevant financial institutions, detailing contributions, interest and dividends for the tax year. This information should be recorded in the “Tax-Exempt Investments” section of your ITR12 form.
Travel allowance
Taxpayers who receive fringe benefits in the form of a travel allowance or a vehicle provided by the employer may be able to claim based on the total number of kilometers traveled exclusively for business purposes.
In order to claim the benefit, the taxpayer must keep a detailed and accurate log of business and other personal affairs. All evidence of qualifying expenses must also be retained.
The deduction can also be claimed on the ITR12 form.
Read: Automatic tax assessments in South Africa – everything you need to know
