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Taxation

Taxation. Chapter 3 (Lecture 3). Taxation. Personal taxation Company taxation Capital gains tax Other taxes Double taxation South African taxation. SOUTH AFRICAN TAXATION. What kinds of tax do we pay. Stamp duty Transfer duty Uncertified securities tax Unemployment insurance fund

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Taxation

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  1. Taxation Chapter 3 (Lecture 3)

  2. Taxation • Personal taxation • Company taxation • Capital gains tax • Other taxes • Double taxation • South African taxation

  3. SOUTH AFRICAN TAXATION What kinds of tax do we pay Stamp duty Transfer duty Uncertified securities tax Unemployment insurance fund Value Added Tax (VAT) Other taxes • Air passenger tax • Capital gains tax (CGT) • Diamond export levy • Donations tax • Estate duty • Excise duty • Income tax • Pay as you earn (PAYE) • Provisional tax • Retirement funds tax (RFT) • Skills development levy (SDL)

  4. 1. Income Tax • Income tax is a tax levied on all income and profit received by a taxpayer (which includes individuals, companies and trusts). • It is the national government’s main source of income and is imposed by the Income Tax Act No. 58 of 1962. • Concept of income tax is "normal" income tax. • ..But the Income Tax Act is also the source of a number of other taxes that still form part of the income tax system: • capital gains tax • donations tax • The Act also establishes a few methods of paying income tax - namely SITE, PAYE and provisional tax.

  5. 1. Income Tax • The year of assessment for taxpayers covers a period of 12 months. • For individuals and trusts, the commencement date of the year of assessment starts on 1 March and ends on the 28/29 February each year. • For Companies and Close Corporations the year of assessment is the applicable financial year. • Income tax returns are available annually after the end of each year of assessment to registered taxpayers, and must be completed and submitted to SARS each year.

  6. 1. Income Tax Who needs to register for income tax? If your earnings for a given tax year are above the tax threshold, you are obliged by law to register for income tax. 2014/2015 liability for tax commences for individuals: • Under 65 years R70 700 • 65 years and older R110 200 • 75 years and older R123 350

  7. 1. Income Tax (2014/2015 for individuals) Tax rebates • Primary: All natural persons R12 726 • Secondary: All natural persons 65 years and older R7 110 • Third: All natural persons 75 years and older R2 367 Monthly medical scheme tax credit • Under 65 years of age: Each of member and first dependent R257 Each additional dependent R172 Additional medical expense tax credit (not necessary to know for FBS112 syllabus)

  8. 1. Income Tax (2014/2015 for individuals) Exempt portion of local interest: • All natural persons under 65 years R23 800 • All natural persons 65 years and older R34 500 Deductions: • Current pension fund contributions: Greater of 7.5% of remuneration, or R1 750

  9. 1. Income Tax (2014/2015 for individuals) Deductions (continue..) 2. Current retirement annuity contributions: The maximum deductions allowable is the greatest of: • 15% of income, net of permissible expenses excluding employment from which employee/director drivesremuneration and is a member of a pension/provident fund • R3 500 less current contributions to a pension fund • R1 750

  10. 1. Income Tax (2014/2015 for individuals) Deductions (continue..) 3. Arrear retirement annuity or pension fund contributions: R1 800 4. Approved education and charitable donations: Limited to 10% of taxable income 5. Travelling allowances: A cost scale is used to determine the tax-free component of a travel allowance received by an employee. Includes the right of use of motor vehicle.

  11. 1. Income Tax Statutory Rates (Individuals)​ ​ Taxable Income (R)​ Rates of tax (R)​ 0 – 174 550 18% of each R1​ 174 551 - 272 700 31 419 + 25% of the amount above 174 550 272 701 - 377 450 55 957 + 30% of the amount above 272 700 377 451 - 528 000 87 382 + 35% of the amount above 377 450 528 001 - 673 100 140 074 + 38% of the amount above 528 000 673 101 and above​ 195 212 + 40% of the amount above 673 100

  12. 1. Income Tax Who needs to submit a completed and signed income tax return to SARS? • Remuneration less than R120 000, taxpayers may elect not to submit an income tax return, provided the following criteria are met: • Remuneration is from a single employer; • Remuneration is for a full year of assessment (1 March – 28/29 February); and • No allowance was paid, from which PAYE was not deducted in full with regards to travel allowance.

  13. 1. Income Tax What are PAYE and provisional tax? • Final income tax payable can only be calculated once the total taxable income earned by the individual for the full year of assessment has been determined. (after year-end) • However, it would be impractical to expect taxpayers to pay tax as a large lump sum once a year. • Therefore…the Income Tax Act has created two mechanisms to solve this problem: • PAYE • Provisional Tax • In this way, income tax is collected as soon as the taxpayer has earned the income and is offset against the final income tax that is due on assessment.

  14. 1. Income Tax 1.1 Employees’ tax (PAYE: PAY-AS-YOU-EARN): • Is the tax that employers must deduct from the employment income of employees – such as salaries, wages and bonuses - and pay over to SARS monthly. • It is withheld daily, weekly, or monthly, when these amounts are paid or become payable to the employees. • An employer must issue an employee with a receipt known as an employees’ tax certificate (an IRP5/IT3(a)) if PAYE have been deducted. This discloses the total employment income earned for the year of assessment and the total PAYE deducted and paid to SARS.

  15. 1. Income Tax In addition Pay-As-You-Earn (PAYE): • Ensure that an employee’s income tax liability is settled when the income is earned. • The advantage: tax liability for the year is settled over the course of the whole year of assessment. • Part-time employees’ tax is deducted at a rate of 25% from employees earning part-time remuneration. • Any leave pay, overtime pay, commission, bonuses and travel allowance or advance are aligned and deemed to occur when the amount is paid both for PAYE withholding and deduction by employer for income tax purposes.

  16. 1. Income Tax 1.2 Provisional tax • Allows taxpayers to provide for their final tax liability by paying two amounts in the course of the year of assessment. But the final liability is determined upon assessment. • Provisional tax payments – • First payment – within six months from the beginning of the year of assessment • Second payment – on or before the last day of the year of assessment • Third payment – seven months after the year of assessment for taxpayers with February year-end and six months after year of assessment for all other cases.

  17. 1. Income Tax Persons exempt from payment of provisional tax: • Over 65 - taxable income does not exceed R120 000 per annum and is derived solely from remuneration, interest, foreign dividends and rental from the letting of fixed property; • Under 65 - taxable income below the threshold, or where taxable income derived from interest, foreign dividends and rental from the letting of fixed property that does not exceed R20 000 per annum. • Exemptions do NOT apply to directors of a private company.

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