Be Your Own Finance Guru

Benjamin Franklin once said: “Nothing is certain but death and taxes.”

Step 1: Get to Grips With Personal Tax

If taxes are a certain—although unpleasant—part of life, why not take charge and learn to use tax to your own maximum benefit?

While most of us look at salaries on a per-month basis, income tax is calculated on an annual basis, starting March 1st until the end of February of the subsequent year. You will need to know what your total income is over that period to understand which tax bracket you are in and how much income tax is due.

But first, how do you know if you are liable for personal tax and whether you should even fill in a tax return?

If any of the following applies to you during the period 1 March 2020 to 28 February 2021, you are required by law to file a tax return:

  • If you are a South African resident that earned above R500,000;
  • If you had more than one employer or source of income;
  • If you are a South African tax resident and conducted any trade or was employed in another country;
  • If you earned interest exceeding the annual exempt amount. For example, for anyone under 65, tax is charged on interest in excess of R23,800 during the tax year, and on interest above R34,500 if you are 65 and over;
  • If you received an allowance such as travel, subsistence or an office bearer allowance, or even a company vehicle fringe benefit;
  • If you hold funds in foreign currency or assets outside South Africa with a combined value of more than R250,000;
  • If you had capital gains or capital losses exceeding R40,000;
  • If you hold rights in a controlled foreign company; and
  • If you received an income tax return or were asked to submit an income tax return.

While there is no shortage of opportunity for the taxman to collect from you, it’s not all bad news. In some circumstances, the taxman may owe you, including:

Medical Expenses

Individuals that have not had their Medical Scheme Fees Tax Credit (MTC) taken into account by an employer (for example, an individual who is retired and receives a pension; or an individual who is self-employed) can claim the MTC on assessment by submission of an annual income tax return. In addition to the MTC, an individual may also claim an Additional Medical Expenses Tax Credit for certain qualifying medical expenses, subject to limitation.

Retirement Annuity

A retirement annuity offers great benefits: you can get up to 27.5% of your annual contribution back as a tax credit (maximum of R350,000), and you get to save up for a comfortable and fulfilling retirement.

Tax-Free Investment

South African taxpayers have several options for tax-free investments, including:

  • Fixed deposits
  • Unit trusts
  • Retail savings bonds
  • Some endowment policies
  • Linked investment products
  • Exchange traded funds, so long as they are classified as collective investment schemes

However, you may only contribute a maximum of R36,000 per year tax free, or only R500,000 over a lifetime, after which you will no longer be able to claim it as a tax-free investment.

Home Office Expenses

The pandemic has completely transformed the world of work, with more people working from home than ever before. If you have a separate room set aside exclusively for work, the good news is that if you perform more than 50% of your work duties in your home office, you qualify to receive a tax rebate on several expenses, including:

  • Your rent
  • The cost of repairs to your home
  • Other expenses linked to the premises
  • In addition, you may be able to claim a portion of expenses such as mobile phone contracts, internet connectivity, cleaning services, office equipment and general wear and tear

Property Rental

If you receive an income from rentals, that income is taxable. However, there is good news: you may be eligible to deduct several expenses related to the property, including:

  • Rates and taxes
  • Bond interest
  • Advertisements
  • Estate agency fees
  • Homeowners insurance
  • Garden services
  • Repairs
  • Security
  • Property levies