Do you understand your tax obligations?

Why get to grips with tax?

As a South African, you are obligated to pay tax, but you can also take advantage of tax-free savings and investments. When you know more about tax, you will also discover ways to become more tax efficient.

When you start working and earning a salary, you’re liable to pay tax. This taxable income is calculated annually by adding all your gross income streams and subtracting all tax-exempt expenses and deductions. Tax is then paid on this amount according to your tax bracket.

If you start at a new company, it’s important to understand the tax implications of cashing in or moving your provident fund or retirement annuities.

If you are working full-time, there is not too much to worry about because your company will probably pay your tax contribution on your behalf. But, if you run a side hustle, you may need to meet certain tax obligations.
 

Submitting a tax return

If you’re employed and earn above the tax threshold, you are required to register for income tax.
You can do this by visiting your nearest SARS office or through their online platform. Registering ensures that you are compliant with SA tax laws and allows SARS to allocate a unique tax reference number to you.

Before you log onto SARS’ eFiling portal, make sure you’ve got all the documents you need to get the most of your tax return.

These include:

• Your IRP5 form
• Logbook of your business trips if you have a travel allowance
• Proof of medical expenses
• Completed IT3(b) certificate (for any investments / policies)
• Details of donations
• Summary of any secondary income.
 

Types of taxes

There are several individual taxes for South Africans, including the following:

• Income tax: This is the tax imposed on your income, including salaries, wages, bonuses, rental income or profits from investments.
• Value-added tax: VAT is a consumption tax paid on goods and services (it’s usually included in the price of products and services).
• Capital gains tax: CGT is the tax paid on profits earned from selling assets, such as property, shares or other investments. Individuals, trusts and companies are required to pay this type of tax.
• Pay-as-you-earn: PAYE is a system where your employer deduct income tax from your salary and bonuses and pay it to SARS on your behalf.

Keep in mind, retirement funds, endowments and unit trust funds are also taxable.

Side hustles and tax

Because taxable income includes all sources of income, your second income can expose you to higher tax rates.

You should consider structuring your income streams in ways that don’t come from your personal liability (eg registering a company).

The free lunch

You can open great tax-free investments in South Africa. For example, an endowment policy a tax-smart way of investing and appreciating your capital and earning returns because they are submitted net of tax yield.

A tax-free savings account provides a tax-exempt fund that can help you maximise your savings.

For more information on your tax bracket, CGT and more, visit the SARS website or speak to your financial adviser.