Deciding whether to audit or review

DECIDING WHETHER TO AUDIT OR REVIEW

How Much of My Retirement Annuity Contribution is Tax Deductible?

Page to be updated shortly.  Please contact us.   We prepared this sheet to provide some clarity around retirement annuity contributions.  The intention is not to provide an opinion, detailed explanations and or calculations, but merely to provide some clarity around current retirement annuity contributions.  Contact us should you require any accounting or tax assistance.  Do not rely on this sheet, this sheet is not comprehensive, tax legislation change on a regular basis and your circumstances may be unique.   Current Retirement Annuity Fund Contributions 15% of taxable income from non-retirement-funding income excluding any severance benefits, or R3 500 less current contributions to a pension fund, or R1 750, whichever is the greater, may be claimed as a tax deduction. Retirement funding income vs non-retirement funding income. As a condition of employment, certain employers contribute on behalf of its employees towards a pension or provident fund.  The contribution is normally a percentage of the gross salary, bonus, allowances and or benefits (hereinafter referred to as salary).  The salary amount subject to the pension or provident fund contribution calculation, is called the retirement funding income.  Taxable income received from the employer that is not subject to pension or provident fund contributions, is called non-retirement funding income.  If an employee is not a member of a pension/provident fund or only contributes towards a retirement annuity fund, all taxable earnings will be defined as non-retirement funding income. An employee whom does not contribute towards a pension or provident fund. Example 1: Tim is 40 years old and earns a gross salary of R150,000 per annum. Tim’s calculation works as follows: R150,000 per annum income x 15% = R22,500 per annum towards his RA (R1,875 per month), R3,500 per annum (R292 per month), R1,750 per annum  (R145 per month) R22,500 per annum is the largest amount.  Tim can therefore deduct R22,500 per annum for tax purposes.  The tax savings: Let’s take a look at the 2014 tax year (1 March 2013 – 28 February 2014).                 >  Without the RA deduction Tim would pay R14,920 in tax for the year.                 >  With the full contribution towards a RA of R22,500 for the year,                       Tim would pay R10,870 in tax. Tim therefore saves R4,050 in tax by contributing R22,500 towards a RA in a year.  The RA therefore effectively costs Tim R18,450 per year.  Example 2: Sizwe earns R700,000 per annum placing him in the highest marginal tax bracket of 40%. Sizwe’s calculation works as follows:
  • R700,000 per annum income x 15% = R105,000 per annum towards his RA (R8,750 per month),
  • R3,500 per annum (R292 per month),
  • R1,750 per annum (R145 per month)
R105,000 per annum is the largest amount, Sizwe can therefore deduct R105,000 per annum for tax purposes. The tax savings:

Let’s take a look at the 2014 tax year (1 March 2013 – 28 February 2014).                 >  Without the RA deduction Sizwe would pay R197,685 in tax for the year.                 >  With the full contribution towards a RA of R105,000 for the year,

                    Sizwe would only pay R156,557 in tax.

Sizwe therefore saves R41,128 in tax by contributing R105,000 towards a RA in a year.  The RA therefore effectively costs Sizwe R63,872 per year. But what if you belong to a pension/provident fund with zero non retirement funding income? Admittedly the tax benefit of owning an RA is much smaller here. Since all of his or her salary is considered to be retirement funding income, he or she does not qualify for the 15% rule. Example 3: Let’s work with Sizwe once more, only this time he belongs to the company’s pension/provident fund and his whole salary is subject to pension/provident fund contributions.  Sizwe contributes R52,500 towards the pension/provident fund. The calculation is as follows:
  • 15% of his non retirement funding income (Which is Nil)
  • R3, 500 less his allowable pension fund contributions (R3,500 – R52,500 = Nil)
  • R1, 750
R1,750 per year is the largest amount, Sizwe can therefore deduct R1,750 per year for tax purposes. The tax savings: Let’s take a look at the 2014 tax year (1 March 2013 – 28 February 2014).                 >  Without the RA deduction Sizwe would pay R188,765 in tax for the year.                 >  With the full contribution towards a RA of R1,750 for the year,                     Sizwe would pay R188,065 in tax. Sizwe therefore saves R700 in tax by contributing R1,750 towards a RA in a year.  The RA therefore effectively costs Sizwe R1,050 per year. Notes: 1. Any excess RA contributions may be carried forward to the following year of assessment. 2. Provident fund contributions made by an individual are not tax deductible. 3. From 1 March 2014, restrictions will be placed on the maximum allowable contributions to retirement funds.  

Who needs to submit an income tax return to SARS?

Where taxpayers receive remuneration less than R350 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 assessment (1 March – 28/29 February); and
  • No allowance was paid, from which PAYE was not deducted in full with regards to travel allowance.
*The R350 000 threshold is applicable for the 2015 income tax year.  Different thresholds are applicable for previous years.

Personal Income Tax Administrative Penalties

Effective 1 January 2009, SARS has begun imposing a range of stringent penalties in respect of non-compliance by taxpayers, which includes:
  • Failure to register as a taxpayer;
  • Failure to inform SARS of a change of address and other personal particulars;
  • Failure to submit Income Tax returns (ITR12) and other documents.
The abovementioned non-compliances are subject to a recurring penalty (this penalty will be charged each month until the non-compliance has been remedied). The amount of the penalty is determined according to the taxpayer’s taxable income or assessed loss. The table below illustrates the penalty to be charged:
Assessed loss or taxable income for preceding year Penalty amount
Assessed loss

R 250

R 0 – R 250 000

R 250

R 250 001 – R 500 000

R  500

R 500 001 – R1 000 000

R 1000

R 1 000 001 – R 5 000 000

R 2000

R 5 000 001 – R 10 000 000

R 4000

R 10 000 001 – R 50 000 000

R 8000

Above R 50 000 000

R 16 000

When must I receive my IRP5?

The IRP 5 / IT 3 (a) certificates must be issued and delivered to employees to whom remuneration is paid or become payable within:
  • 60 days after the end of the tax year or alternate period;
  • 14 days after an employee has left the employer’s service;
  • 7 days after the employer has ceased to be an employer; or
  • a further period as the Commissioner under special circumstances may approve.
The electronic data information must be submitted in the prescribed submission method within:
  • 60 days after the end of the tax year or alternate period;
  • 14 days after the date on which the employer has ceased to carry on business or other undertaking in respect of which an employer has paid or becomes liable to pay remuneration to any employee; or
  • such longer time as the Commissioner may approve.

Capital Gains Tax

9 Assets that are subject to capital gains tax:

Gains made on the disposal of the following assets will generally be taxed:
  1. Main residence owned by a company, close corporation or trust other than a special trust
  2. Holiday homes or second homes and properties let to tenants
  3. A boat exceeding ten meters in size
  4. Caravans
  5. An aircraft, the empty mass of which exceeds 450 kilograms
  6. Shares, unit trusts and private investments, and second-hand policies
  7. Kruger Rands or other silver, platinum, or gold minted coins or any other coin the market value of which lies mainly in the metal it’s made of
  8. Sale of your business, other than on retirement
  9. All other capital assets except those specifically excluded

Provisional Tax

April 10, 2013 By Wynand The following individuals are not required to pay provisional tax: Any person whose income is derived solely from remuneration.
  • Any person who does carry on a business and whose income does not exceed the tax threshold for the year. The tax thresholds for the 2016 year of assessment are:
  • R73 650   for persons under the age of 65
  • R114 800  for persons over the age of 65 and below 75
  • R128 500  for persons over the age of 75
  • The taxable income of any person derived from interests, dividends or rental from the letting of fixed property and it will not exceed R30 000 for the relevant year.
  • The investment income does not exceed the exemption for the year. The exemptions for the 2015 year of assessment are:
  • R23 800 for persons under 65
  • R34 500 for persons over 65
  • Any person 65 years or older is exempt from the payment of provisional tax if:
  • The taxable income for the tax year does not exceed R120 000 and consists of remuneration, pension, interest, dividends or rental income from the letting of fixed property; and
  • He / she does not carry on any business.
Close corporations, companies, trusts etc are all provisional taxpayers.      

Voluntary vs Involuntary retrenchments

  • Voluntary redundancy takes place when the company, wishing to downsize workforce, offers it to all employees and those who wish to leave opt for it.
  • Compulsory redundancy is a situation where company decides on its own which are the employees it wishes to leave.
You shall not be entitled to the Involuntary Retrenchment benefit in the following circumstances:
    • where impending Involuntary Retrenchment was known to you at the Effective Date whether an official written or oral notice had been given or not;
    • where your employment was terminated because of your misconduct, deficiency in the performance of your duties, resignation or voluntary redundancy;
    • where your employment was terminated at the end of a fixed-term contract, unless the fixed-term contract was for at least twelve (12) months with the same employer and:
  • (i) it was renewed at least once; or
  • (ii) you were originally employed on a permanent basis;
  • where your employment was terminated at the end of Temporary Work;
  • if you are Self-Employed;
  • for any period for which you are entitled to receive payment in lieu of the termination notice; and
  • where the Involuntary Retrenchment occurs within ninety (90) days of the Effective Date

Who needs to register for VAT?

Persons who make taxable supplies in excess of R1 million (from 1 March 2009) in any 12-month consecutive period are liable for compulsory VAT registration, but a person may also choose to register voluntarily provided that the minimum threshold of R50 000 (from 1 March 2010) has been exceeded in the past 12-month period. Persons who are liable to register, and those who have registered voluntarily, are referred to as vendors. Vendors have to perform certain duties and take on certain responsibilities if they are registered or liable to register for VAT. For example, vendors are required to ensure that VAT is collected on taxable transactions, that they submit returns and payments on time, that they issue tax invoices where required, that they include VAT in all prices advertised or quoted etc.

Who needs to register for income tax?

The Minister announced “as from September 2010 SARS will require all those receiving any form of employment income – including those below the tax threshold – to be registered with SARS to help reduce the scope for non-compliance.