Complete guide on personal income tax
What you will learn in this guide:
After reading this guide you'll understand why your personal income is taxed and what happens when you don't pay your tax. More importantly, you'll know where and why you need to submit your tax returns at the end of the tax year.
- What is personal income tax?
- Who is liable for personal income tax ?
- How much tax are you liable for?
- Why do you need to pay tax?
- How is it collected?
- Submitting your tax returns
- Who is exempt from filing for tax returns?
- What if you don’t pay tax?
- Can you pay your tax earlier?
- Tips when filling your tax return forms from SARS
Tax comes in many different forms. There are taxes on public goods, property, and corporate tax, but in this guide we’ll walk you through personal income tax – from what it means to how you should file your tax returns.
What is personal income tax?
The South African Revenue Services (SARS) defines income tax as the normal tax which is paid on your taxable income. This includes your salary, wages, bonuses, overtime income, commissions, and fringe benefits. Personal income tax can also come from investments (interest and dividends), pension withdrawals, capital gains (which come from the sale of an asset), and annuities.
Who is liable for personal income tax ?
There are many factors that determine who’s liable for tax or not. Anyone who’s younger than 65 and earns an income has the responsibility to pay tax. However, there are also other dynamics that come in to play such as tax thresholds. People who earn less that R83,100 are not liable to pay tax.
People who are over the age of 65 can pay tax but not if they earn less than R128,650 and those who are above the age of 75 can only pay if they have an income of R143,850 or more. These tax threshold amount change and are announced annually during the budget speech by the Minister of Finance.
How much tax are you liable for?
The amount of tax you pay is set on a sliding scale. It depends on how much you earn. People who earn more will pay more and those who earn less will pay less. People who fall within a certain income bracket will pay a certain tax rate. This tax method is described as a progressive one. Below are the rates for the 2021 tax year.
Taxable income (R)
Rates of tax (R)
1 – 205,900
18% of taxable income
205,901 – 321,600
37,062 + 26% of taxable income above 205,900
321,601 – 445,100
67,144 + 31% of taxable income above 321,600
445,101 – 584,200
105,429 + 36% of taxable income above 445,100
584,201 – 744,800
155,505 + 39% of taxable income above 584,200
744,801 – 1,577,300
218,139 + 41% of taxable income above 744,800
15,77,301 and above
559,464 + 45% of taxable income above 1,577,300
Why do you need to pay tax?
The reason you pay tax is to help the government carry out its duties such as providing public goods and services and paying civil servants. Roads, public schools, hospitals, and clinics are some of the services that the government uses to tax for. The salaries of civil servants such as teachers, nurses, and the police are also derived from your taxes. The government also uses tax to look after the country’s poor and vulnerable people. Social grant beneficiaries depend on the tax that citizens pay.
How is it collected?
SARS is the body that’s responsible for administering tax in South Africa. If you’re just starting to work you can register as a taxpayer through your employer (employers are required to register with the institution within 21 business days after becoming an employer, unless none of the employees are liable for normal tax), or you can visit the nearest SARS branch or website.
After registration you’ll be given a unique tax number that will be under your name eternally. Your employer will then deduct the tax amount that you’re required to pay from your salary every month and pay it to SARS. When registering as a taxpayer you’ll need your identity document.
Submitting your tax returns
The tax year begins on 1 March and ends on 28 February or 29 February on a leap year. If you have received income such as your remuneration, capital gains, travel allowance dividends, interest from investments, or rent, you should file for a tax return. A tax return allows you to calculate how much you owe or are owed by the taxman, and to request refunds if you’ve overpaid. It also allows you to arrange payments.
As from 1 July to December of every year you need to obtain an IRP5 form that you will need to submit to SARS. This is a certificate that provides information about your income, tax, and all other deductions that are issued by an employer at the end of the tax year.
If you want a tax return for your other income such as interest from investments, rental income, and capital gains, you need to get an IT3b form from your bank. For non-salary taxpayers or provisional taxpayers, an IRP6 form will be needed to submit your returns. You can download it from your bank’s website and submit it to your nearest SARS branch or online through eFiling.
Who is exempt from filing for tax returns?
If you earn under R350 000 for a full year from one employer, you’re exempted from filing for tax returns (this amount changes every year). However, if you have other sources of income, you must submit.
If you fail to submit your tax returns, SARS will charge you an admin penalty. The penalty will keep recurring for each month that you don’t pay and will remain outstanding for 35 months. This penalty can range from R250 to R16,000, depending on your income. If you don’t pay the penalty, SARS will find ways to collect it from you, such as attaching your salary.
What if you don’t pay tax?
Tax evasion is a criminal offence. If you conceal or misrepresent the state of your financial affairs to avoid paying tax, you could be fined or face five years’ jail time.
If you’ve submitted your tax returns but fail to pay what you owe, SARS will deal with you in the following ways:
- Collect the debt from someone who holds money on your behalf such as employer, bank or customer.
- Issue a judgement and have your name blacklisted.
- Attach and sell your assets.
- Obtain a preservation order in respect of your assets.
- If you hold assets offshore, an order can be obtained compelling the assets to be repatriated to South Africa and in the interim your right to trade or to travel can be restrained.
- Liquidate or sequestrate your estate.
Can you pay your tax earlier?
You’re allowed to pay your tax in advance. This is called provisional tax. Non-salary taxpayers and businesses are classified as provisional taxpayers. It allows you to make two payments in advance during the year of assessment. This helps you spread the tax load over the assessment year.
According to SARS, the first provisional tax payment must be made within six months of the start of the year of assessment. The second payment must be made no later than the last working day of the year of assessment. These payments are not refundable and when filing your tax return, you will need an IRP6 form.
Tips when filling your tax return forms from SARS
Your income tax return will be pre-populated with information available to SARS, such as personal particulars (for example name, surname, physical and postal address, banking details, etc.) and information received from third parties (e.g. employers, pension funds, retirement funds and medical schemes).
You must check your personal particulars for accuracy. Only correct those fields containing incorrect information. If the return is posted to you, your information will be pre-populated in pink. Please note the following when correcting any of the pre-populated information on the posted return:
- Use a black pen to write over the information printed in pink
- Use capital letters
- Keep your writing within the spaces provided
- Don’t be concerned if some of the pink lettering is still displayed where the correction in black has been made. SARS will ignore the pink information if it has been written over in black.
- Write the word or number in full. Don’t change only one letter of a name or one digit of a number. Re-write the full name or number.
- If you want to delete pre-populated information that is no longer applicable, do so by putting a horizontal line through the middle of the incorrect characters in the field.
- If you made a mistake when completing a field, don’t attempt to correct it by completing the correct information outside the field, or by making notes in the margin. This information will not be considered as valid and will not be taken into account in the calculation of the assessment. You must contact SARS to request a new return. Alternatively, you can register for eFiling and then request and submit your return electronically.
- Even though your return is customised according to your specific needs, there might still be fields on your return that aren’t applicable to you. Leave these spaces blank. Don’t write N/A or enter zeros or strike through the spaces/blocks that don’t apply.
- All relevant parts of the return must be completed. An incomplete return will be sent back to you and will be considered as ‘outstanding’ until the fully completed return is received. This could result in penalties for the late submission of a return.
- Personal income tax is deducted from your salary, wages, bonuses, overtime income, commissions, fringe benefits, investments (interest and dividends), pension withdrawals, capital gains (which come from the sale of an asset), and annuities.
- Everyone who has an income needs to pay tax.
- The amount of tax you pay is set on a sliding scale.
- The reason you pay tax is to help the government carry out its duties such as providing public goods and services and paying civil servants.
- SARS is the body that’s responsible for administering tax in South Africa.
- The tax year begins on 1 March and ends on 28 February or 29 February on a leap year.
- If you conceal or misrepresent the state of your financial affairs to avoid paying tax, you could be fined or face five years’ jail time.