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How does Tax Work For Individuals?

How does tax work?

Individuals who earn income, examples of which include a salary, wages, a pension, interest income or rental income, are liable to pay tax on this income. The rates of tax chargeable on taxable income are determined annually by Parliament, and are generally referred to as “marginal rates of tax” or “statutory rates”. The rate of tax levied on an individual is set on a sliding scale which results in the tax increasing as taxable income increases. Every year, the Minister of Finance announces the rates to be levied by publishing the applicable tax tables during the annual budget speech. The rates of rax ranges from 18% up to as high as 45%.

What relief does SARS offer you?

1. Annual Tax Rebate

SARS has annual tax rebates for taxpayers which is an amount that is deducted from the tax payable. The rebates have the effect of establishing amounts below which no tax is payable.

These rebates vary depending on your age and for the 2023 tax year (01 March 2022 to 31 March) the annual taxable income that individuals will not have to pay tax on are:

  • If you are under 65 years of age - R95 750.

  • If you are between the ages of 65 and 75 - R148 217.

  • If you are older than 75 years of age - R165 689.

2. Medical Aid Tax Credits

In additional to the Annual Tax Rebate, SARS also offers a Medical Scheme Fees Tax Credit. This is a non-refundable rebate, calculated on a person per basis, that also reduces the tax payable and will also increase the annual taxable income amount on which no tax will be payable.

The Medical Scheme Fees Tax Credit consists of 2 amounts:

  • The Medical Scheme Fees Credit; AND

  • The additional medical expenses credit.

The Medical Scheme Fees Credit applies to the fees that you pay to a registered medical aid in South Africa. It is a fixed amount per person that increases according to the number of members on the scheme. For the 2023 tax year the rates are:

  • R347 per member for the first 2 members;

  • R234 per member thereafter.

The additional medical expenses tax credit offers tax relief in respect of certain qualifying medical expenses that are not covered by a medical scheme. Available credits depend on the main member’s age, and whether he / she / or a dependant has a physical impairment or disability.

3. Interest Rebate:

Interest received by an individual is included in calculating your taxable income. SARS does however give an exemption on the first R23,800 of local interest income earned i.e. this income is not included in determining your taxable income and is therefore tax free. Only the amount in excess of R23 800 will be included and subjected to tax.This amount increases to R34,500 for taxpayers who are 65 years of age or older.

4. Solar Installation:

SARS is now offering relief for solar installations in private residences in the form of a rebate. This deduction is against your tax liability. This rebate is a deduction against your tax liability. The rebate calculation is 25% of the cost of the solar panels subject to a maximum of R15 000. Should you sell your house SARS will not claim anything back from you. Should you sell your panels within 12 months of claiming the rebate, SARS will look to recoup this money from you.

What expenses can I claim against to reduce my taxable income?

Individuals can reduce their tax liability with some allowances from SARS. The most common of these allowances are:

1. Travel allowances:

individuals who use their car for business purposes and who are reimbursed and compensated by his/her employer. This will be calculated considering the amount of business vs personal travel done in the vehicle, and as per the tax table that applies.

2. Contributions to a retirement fund:

This could contributions to a retirement annuity, pension fund or provident fund. SARS allows you to claim a deduction up to 27.5% of your income but limited to a maximum of R350 000 per year.

3. Home Office Expenses:

Home office expenses can be claimed as a deduction against your income but within limits prescribed by SARS. It is important to note that SARS requires you to have a dedicated area and expenses, like your bond interest, rates, utilities allocated based on the percentage this area represents of your total house square meterage. You cannot claim a shared area e.g. your dining room space.

Should you have any questions please feel free to reach out to us for more details!

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