We feel it is our duty to assist you with legally maximizing your tax refunds by utilizing all the available SARS guidelines. Firstly let’s find out who should pay tax and who should not?
You are liable to pay income tax if you earn more than:
For the 2021 year of assessment (1 March 2020 – 28 February 2021)
- R83 100 if you are younger than 65 years.
- If you are 65 years of age or older, the tax threshold (i.e. the amount above which income tax becomes payable) increases to R128 650.
- For taxpayers aged 75 years and older, this threshold is R143 850.
For the 2020 year of assessment (1 March 2019 – 29 February 2020)
- R79 000 if you are younger than 65 years.
- If you are 65 years of age or older, the tax threshold (i.e. the amount above which income tax becomes payable) increases to R122 300.
- For taxpayers aged 75 years and older, this threshold is R136 750.
Now let us look at a few tax tips you need to be putting to use to ensure you get the maximum tax refund.
- Contribute towards a retirement fund
The best way to reduce your annual tax bill is to contribute towards a retirement funds as they are tax deductible up to a limit of 27.5% of one’s taxable income to a maximum of R350 000 per annum.
Because you cannot access your retirement funds until you are 55 years of age this is considered a great way of saving for the future. Arrangements to this contribution can be made with your employer.
- Tax free savings account
This is an incentive by the South African government to encourage people to save.
This account allows an individual to put up a maximum investment of R 36 000 per annum and a life time investment of R500 000, of which the growth and interest on this type of account is completely tax free.
- Donate to a SARS registered charity.
A Public Benefit Organization is (PBO) is a Non-Governmental organization which holds special approval by SARS not to pay any tax in South Africa on the donations it receives .
Up to 10% of donations made to a SARS approved PBO are deductible against a tax payers income provided they hold the Section 18(A) certificate.
- Joint Ventures
Although SARS permits up to 100% investment in a recognized and approved Joint Venture, however this is only worthwhile for those on the top of the tax margin of (45%) after the investment.
One should always be careful as there are good and bad investments, therefore they should pay attention and be careful about those that are self-liquidating investments.
- Claiming against Independent Contractor.
If a person has a code 3616 on their IPR5 they may be seen as self-employed and be entitled to claim valid business expenses against their income. However a deep understanding of section 11 of the income tax act is required with reference to matters in section 11(e), (d), and (o).
- Employment gapping
Not an easy decision to make but once done it yields good results ,even though it means less income during the tax year .If a person wants to retire ,take voluntary retrenchment from work, start their own business venture or simply resign from their place of employment ,one needs to do it at the right time .
If done correctly this could yield a very good tax refund from SARS. Understanding the gap in employment could be used to a person’s advantage.
When an employee ends their employment income ends and also withholding of their taxes. The refund arises because the payroll system would have calculated PAYE on the assumption that you will get that same salary for the full year. The fact that you stop working before the year ends means that you would have over paid PAYE since the rest of the months would be zero income.
- Join a Medical Aid Scheme
If you contribute to a medical aid this tax year (ie 2020/2021) you will receive a fixed monthly tax credit of R319 for you as a primary member a further R319 for your first dependent and R215 per month for each additional dependent.
A good example would be Ted who pays medical aid for himself, his wife and 4 of their children. His tax credit for the 2021 tax year will be calculated as follows.
R319 for Ted
+RR319 for his wife
+ (R215 × 4) his children
R1498 tax credit per month (R17 976 per year).
If your medical expense is greater than your tax liability then the tax liability will be reduced to nil and you will not receive any refund.
- Travel allowance
This is a taxable fringe benefit which means it will be included in the calculation of taxable income, In most cases 80% of people travel for personal reasons and 20% for business, but if one keeps a log book for their business mileage they are able to claim it back from SARS.
- Maintaining a home office.
If you are required to work from home, you can claim a home office expense. Just make sure the office is used regularly and exclusively for business purposes and that the office is where the duties are rendered on behalf of the employer .
One has to make sure that all the required documents are made available as SARS always audits a return with a home expense.
- Foreign tax exemptions.
If an individual rendered their services on behalf of the employer in a foreign country ,the foreign income (not all the income ) can be exempt from tax under section 10 of the income tax Act .The tax payer must make sure that the employer used the correct codes and that they are familiar with this piece of legislation as SARS collects money and having these exclusions granted can become complex .