Individuals that are in salaried employment have limited tax benefits.
There are, however, certain tax benefits that may be used by individuals in salaried employment who are aware of the South African tax laws, notes Daniel Baines, author of ‘How to Get a SARS Refund‘.
These can be grouped into the following categories:
- Travel Claims
If you receive a travel allowance from your employer and use your car for work purposes, you can reduce your tax liability upon submission of your annual tax return. In order to obtain this benefit, you must keep a proper logbook. An example of a logbook can be found on the SARS website.
- Retirement fund contributions
As most taxpayers know, contributions made to a retirement annuity, pension fund or provident fund can greatly reduce a person’s tax liability. In this way, a taxpayer can contribute to their retirement as well as gain a reduction in tax liability when they submit their annual tax return (in the case of contributions to a retirement annuity).
Taxpayers that contribute to an employer run pension fund should be receiving their reduction in tax liability on a monthly basis.
- Donations to charity
Donations made to a SARS approved Public Benefit Organisation that is able to issue section 18A certificates to a donor can be used to reduce a taxpayer’s tax liability. The taxpayer will need to obtain a section 18A certificate from the charity and submit this to SARS upon submission of their annual tax return.
2. Exempt Income
Interest earned by taxpayers is exempt from taxation on amounts up to R23 800 per tax year (for taxpayer’s under the age of 65). Taxpayers can arrange their financial affairs in such a manner so as to utilise this exemption and increase their tax-free income.
Dividends paid by a South African company to a South African tax resident are exempt from taxation in the hands of the shareholder. This is because there is a 20% withholding tax that is levied prior to the dividend being paid to the taxpayer.
- Tax-free investment accounts
Tax-free investment accounts are useful accounts for long-term savings. People that have long-term saving goals, such as saving for their children’s university education, should consider opening such an account as all amounts earned in these accounts is exempt from taxation.
This means that there is no 20% withholdings tax on dividends paid in this account and a taxpayer’s R23 800 interest exemption is not affected by interest earned in this account.
If you are a commission earner or independent contractor you are entitled to far greater tax benefits than a person in salaried employment. These taxpayers are allowed to deduct all business related expenditure that was incurred to produce their commission/independent contractor income.