Chapter 3 (Lecture 3)
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Personal taxation
Company taxation
Capital gains tax
Other taxes
Double taxation
• South African taxation
What kinds of tax do we pay
o Air passenger tax
oCapital gains tax
(CGT)
o Diamond export levy
o Donations tax
o Estate duty
o Excise duty
oIncome tax
oPay as you earn (PAYE)
oProvisional tax
o Retirement funds tax (RFT)
o Skills development levy (SDL)
o Stamp duty
o Transfer duty
o Uncertified securities tax
o Unemployment insurance fund
oValue Added Tax
(VAT)
oOther taxes
• Income tax is a tax levied on all income and profit received by
a taxpayer (which includes individuals, companies and trusts).
• It is the national government’s main source of income and is
imposed by the Income Tax Act No. 58 of 1962.
• Concept of income tax is "normal" income tax.
• ..But the Income Tax Act is also the source of a number of other
taxes that still form part of the income tax system:
capital gains tax
donations tax
The Act also establishes a few methods of paying income tax - namely
SITE, PAYE and provisional tax.
• The year of assessment for taxpayers covers a period of 12
months.
• For individuals and trusts, the commencement date of the year
of assessment starts on 1 March and ends on the 28/29
February each year.
• For Companies and Close Corporations the year of assessment
is the applicable financial year.
• Income tax returns are available annually after the end of each
year of assessment to registered taxpayers, and must be
completed and submitted to SARS each year.
Who needs to register for income tax?
If your earnings for a given tax year are above the tax threshold,
you are obliged by law to register for income tax.
2014/2015 liability for tax commences for individuals:
• Under 65 years
R70 700
• 65 years and older
R110 200
• 75 years and older
R123 350
Tax rebates
• Primary: All natural persons
R12 726
• Secondary: All natural persons 65 years and older
• Third: All natural persons 75 years and older
Monthly medical scheme tax credit
• Under 65 years of age:
Each of member and first dependent
Each additional dependent
R7 110
R2 367
R257
R172
Additional medical expense tax credit (not necessary to know for
FBS112 syllabus)
Exempt portion of local interest:
• All natural persons under 65 years
• All natural persons 65 years and older
R23 800
R34 500
Deductions:
1. Current pension fund contributions:
Greater of 7.5% of remuneration, or R1 750
Deductions (continue..)
2. Current retirement annuity contributions:
The maximum deductions allowable is the greatest of:
a) 15% of income, net of permissible expenses excluding
employment from which employee/director drives
remuneration and is a member of a pension/provident fund
b) R3 500 less current contributions to a pension fund
c) R1 750
Deductions (continue..)
3. Arrear retirement annuity or pension fund contributions:
800
R1
4. Approved education and charitable donations:
Limited to 10% of taxable income
5. Travelling allowances:
A cost scale is used to determine the tax-free
component of
a travel allowance received by an
employee. Includes the right of
use of motor vehicle.
Taxable Income (R)
0 – 174 550
174 551 - 272 700
272 701 - 377 450
377 451 - 528 000
528 001 - 673 100
673 101 and above
Rates of tax (R)
18% of each R1
31 419 + 25% of the amount above
174 550
55 957 + 30% of the amount above
272 700
87 382 + 35% of the amount above
377 450
140 074 + 38% of the amount above
528 000
195 212 + 40% of the amount above
673 100
Who needs to submit a completed and signed income
tax return to SARS?
o Remuneration less than R120 000, taxpayers may elect not to submit an
income tax return, provided the following criteria are met:
Remuneration is from a single employer;
Remuneration is for a full year of assessment (1 March – 28/29
February); and
No allowance was paid, from which PAYE was not deducted in full with
regards to travel allowance.
What are PAYE and provisional tax?
o Final income tax payable can only be calculated once the total
taxable income earned by the individual for the full year of
assessment has been determined. (after year-end)
o However, it would be impractical to expect taxpayers to pay tax as
a large lump sum once a year.
o Therefore…the Income Tax Act has created two mechanisms to solve
this problem:
PAYE
Provisional Tax
o In this way, income tax is collected as soon as the taxpayer has
earned the income and is offset against the final income tax that is
due on assessment.
1.1 Employees’ tax (PAYE: PAY-AS-YOU-EARN):
• Is the tax that employers must deduct from the employment
income of employees – such as salaries, wages and bonuses and pay over to SARS monthly.
• It is withheld daily, weekly, or monthly, when these amounts are
paid or become payable to the employees.
• An employer must issue an employee with a receipt known as an
employees’ tax certificate (an IRP5/IT3(a)) if PAYE have been
deducted. This discloses the total employment income earned
for the year of assessment and the total PAYE deducted and
paid to SARS.
In addition Pay-As-You-Earn (PAYE):
• Ensure that an employee’s income tax liability is settled when
the income is earned.
• The advantage: tax liability for the year is settled over the
course of the whole year of assessment.
• Part-time employees’ tax is deducted at a rate of 25% from
employees earning part-time remuneration.
• Any leave pay, overtime pay, commission, bonuses and travel
allowance or advance are aligned and deemed to occur when
the amount is paid both for PAYE withholding and deduction by
employer for income tax purposes.
1.2 Provisional tax
• Allows taxpayers to provide for their final tax liability by paying two
amounts in the course of the year of assessment. But the final liability
is determined upon assessment.
• Provisional tax payments –
First payment – within six months from the beginning of the year of
assessment
Second payment – on or before the last day of the year of assessment
Third payment – seven months after the year of assessment for taxpayers
with February year-end and six months after year of assessment for all other
cases.
Persons exempt from payment of provisional tax:
• Over 65 - taxable income does not exceed R120 000 per
annum and is derived solely from remuneration, interest, foreign
dividends and rental from the letting of fixed property;
• Under 65 - taxable income below the threshold, or where
taxable income derived from interest, foreign dividends and
rental from the letting of fixed property that does not exceed
R20 000 per annum.
• Exemptions do NOT apply to directors of a private company.