Income tax is the government’s main source of income and is levied in terms of the Act on the taxable income of people.

Normal tax in South Africa is imposed on all persons in the form of annual tax that is calculated by means of the predetermined tax brackets and applied to a person’s taxable income. A tax year in South Africa covers 12 months which starts 1 March of a specific tax year and ends on the last day of February the following year.

Individual income tax rates in South Africa, for the 2017/2018 financial year range from 18% (for income below R189 880) to 45% (for income above R1 500 000).

The purpose of PAYE is to ensure that an employee’s income tax liability calculated on remuneration is settled at the same time that the remuneration is earned. The advantage of this system is that the liability for the year of assessment is settled over the course of that whole year.

Every employer who pays or becomes liable to pay an amount by way of remuneration, or if that amount constitutes a lump sum, is obliged to deduct employees’ tax (PAYE, where applicable) from that amount every month. The employees’ tax deducted must be paid over to SARS within seven days after the end of the month during which such deduction was made.

FAQ

Who needs to pay tax?

People who pay income tax are generally individuals who earn an income e.g. from a salary, commission, fees, etc.

Click here for the tax thresholds related to the 2017 tax year.

When do I have to file an Income Tax return?

You don’t need to file if your total salary for the year before tax is not more than R350 000, provided:

  • You only have one employer (but remember if you have two employers you do need to file however little you have earned).
  • You have no car allowance or other income (e.g. interest or rent).
  • You are not claiming tax related deductions (e.g. medical expenses, retirement, travel).
  • You received interest from a source in South Africa not exceeding –
    • R23 800 if you are below the age of 65 years; or
    • R34 500 if you aged 65 years or older.
  • Dividends were paid to you and you were a non-resident during the year of assessment.

What about other income?

Yes, you do pay tax on other income you may have. So, for example, tax applies on:

  • Income from business activities
  • Income from directorships
  • Income from trusts
  • Investment income
  • Rental income
  • Royalties income
  • Certain capital gains
  • And when you are older on annuities & pensions

What deductions are claimable?

Tax legislation provides for a taxpayer to claim certain expenses incurred during a year of assessment against the income received. However, the type of expenses you can claim is dependent on the type of income you received. Deductions are the amounts that have been incurred as expenses in the production of income, and that are deductible from income in terms of the Income Tax Act. These amounts are specified in sections 11 to 19, and section 23 of the Income Tax Act, and together form the general deduction formulae. Some of the items are allowed as a deduction (subject to limits).

Expenses allowed by the law for different types of income are the following:

Salary

  1. Medical scheme contributions

An employee is entitled to a medical tax credit in respect of medical scheme contributions paid by the employee, irrespective of the employee’s age. The monthly medical tax credit amounts are:

  • R270 for the main member,
  • R270 for the first dependant, and
  • R181 for each additional dependant.

Medical tax credits (rebates) must be deducted from the employee’s normal tax calculated for the month, however where the contributions are not processed on the payroll (i.e. the employee belongs to a private medical aid), employers may at their option take into consideration contributions to a registered medical scheme which the employee has paid directly and supplied proof of.

  1. Pension fund contributions
  2. Retirement annuity fund contributions
  3. Donations – The amount will only qualify as a deduction if the receipt shows that it is issued in terms of section 18A of the Income Tax Act.
  4. Salary earners who receive certain allowances (for example a travel or car allowance or a taxable subsistence allowance) can claim against the allowance. A travel allowance is granted to an employee in respect of travelling expenses for business purposes. This is a fixed allowance that the employee receives every pay period, regardless of actual business kilometres travelled in that period. Private travel includes travelling by the employee between his place of residence and his place of employment or business, as well as any other travelling done for his private purposes. Any travel expenses paid or reimbursed (other than a reimbursement for actual business kilometres travelled) by the employer, whether paid for directly or by issuing a garage or petrol card, are regarded as a travel allowance. For PAYE purposes, SARS requires the deduction of PAYE from 80% of a travel allowance, unless the employee uses the vehicle at least 80% for business, then SARS requires the deduction of PAYE from 20% of a travel allowance.

Commission, Independent Contractors, Holders of Public Office

Taxpayers who earn commission income will have to consult section 11(a) of the Income Tax Act no 58 of 1962 to determine exactly what expenses can be claimed. Also see section 8 (1)(d) in respect of holders of public office.