Financial year end is approaching once again, and soon preparations will commence for personal income tax submission. Experts note that taxpayers frequently focus on remuneration in their tax returns, and forget about the deductions that could see them save some cash.
We spoke to Tax Consulting South Africa, a tax advisory service, to help you maximise allowable deductions when preparing your tax return.
Tip: Use our tax calculator to see how much income tax you will pay this year.
1. Donations
If you have donated to a Public Benefit Organization (PBO), and have received a donations receipt, you can claim this on your return. The allowance is limited to 10% of your taxable income per year, but the excess will be carried over to the next assessment year.
2. Expenses relating to rental income
Expenses that can be claimed against rental income include, among others, commission fees, legal fees, electricity, rates and taxes, insurance, interest on bond, repairs and maintenance relating to the property, telephone costs, travel costs, and levies.
If these expenses exceed the rental income received, the loss can be offset against total income to reduce the tax liability.
3. Commission earners
To be classified as a commission earner, your commission income must comprise 50% or more of your total remuneration. The expenses that you can claim must be directly incurred in the production of income, and these include for example your cell phone or telephone bill, internet bill, PC or laptop maintenance costs, home office expenses, and travel costs, provided a record of these expenses was kept.
4. Medical Tax Credit
If you belong to a medical scheme, you can submit a claim. The Medical Tax Credit (MTC) consists of two amounts - medical scheme fees tax credit and medical expenses tax credit.
According to SARS, MTC is not refundable, but it reduces the amount you pay towards tax. If you are paying your contributions through your employer, your employer will adjust your income tax. However, if you are retired or self-employed – in other words, making your own contributions – you can claim the MTC on assessment.
5. Travel allowance
Do you use your car for a company’s benefit? If you receive a travel allowance, you should submit your tax returns. Tax laws allow employees who receive a travel allowance to claim a deduction on the assessment of their annual income tax return for the use of a private motor vehicle for business purposes.
For you to claim the deduction, you must keep a logbook to record all business kilometres. According to SARS, the logbook must contain the date of travel, kilometres travelled, and travel details (where to and reason for the trip).
What are the benefits of submitting your tax return?
According to Tax Consulting SA, submitting your return to SARS means that your records with SARS are complete, you are tax compliant and can obtain a Tax Clearance Certificate. This comes in handy should you wish to apply for a mortgage, or to financially emigrate from South Africa.
Another advantage is that you will avoid penalties imposed by SARS for non-compliance.
There is a misconception that filing a return means you are obligated to make payment to SARS, or that you will automatically get a refund, says Tax Consulting SA. Filing a return actually means that you are declaring your annual income during the year of assessment, and the tax that was withheld by your employer under the auspices of Pay As You Earn (PAYE).
SARS pays a tax refund where your tax liability is less than your taxes already paid or withheld.
If you’re having problems filling in your tax returns, click here to see how JustMoney can assist you.