When you are not required to file a tax return

As tax filing season gets under way it’s worth remembering that you will most likely need a tax number, even if you are not required to file a tax return.

Besides, registering for tax paves the way for future opportunities, says Stephen Hartzenberg, product architect at 10X Investments.

You are not required to file a return if:

  • Your annual income falls below the tax-filing threshold of R500,000 (recently raised from R350,000);
  • You have received income from one employer only for the full tax year;
  • You have received no other income (e.g. car allowance, business income, rental income, taxable interest, or income from another job, or from an annuity); and
  • You are claiming no additional deductions, such as for medical costs, RA contributions, or travel expenses.

“But, before you rejoice at the idea of not having to deal with Sars, remember that squaring up annually with the Receiver of Revenue is not the only reason to engage with the taxman,” said Hartzenberg.

For one thing, providing your tax number is part and parcel of the payroll take-on process your employer has a duty to deduct PAYE tax and Sars can’t allocate this without a corresponding tax number.

“Even if you won’t appear on any payroll because you are self-employed or work as an independent consultant, you should have a tax number and file returns,” the tax expert said.

To get your number, visit a Sars branch with your ID book/card and proof of residence. If you are full-time employed and are not aware of your tax number, it is possible that your employer applied for it on your behalf.

Hartzenberg said that flying below Sars’s radar as an independent contractor will almost certainly come back to bite you at some point. “Operating without a tax number will seem expedient only until you realise that you can’t function properly in our financial system without one.”

You will need to provide a tax number to join a retirement annuity fund, to open a stockbroking account, to invest in a unit trust, or to apply for a property loan.

“If you plan to invest your money in a savings account only, your bank will forward a copy of the IT3(b) return (a confirmation of the interest you earned for the tax year) to Sars. This is linked to your ID number. If the amounts are material, and there is no corresponding tax number, Sars will follow up,” Hartzenberg said.

“Alternatively, you may be called upon to provide a Tax Clearance Certificate under certain circumstances, for example as a shareholder in a private company, if you wish to take money offshore in excess of your R1 million annual allowance, or if you plan to go through the financial emigration process.”

Taking your money offshore will not save you either, Hartzenberg warned.

“In terms of the Organisation for Economic Co-operation and Development’s Automatic Exchange of Information agreement, you must now provide the tax number for your country of residence when you open a bank account somewhere else. Of the countries that are not party to this agreement, only the US is likely to appeal.

“But there, your account must be linked to a social security number.”

A complete tax record goes a long way

Applying for a tax number only when you need it is going to raise eyebrows, the tax specialist said. “It could lead to queries and a more thorough investigation, and possibly sanctions and penalties. For sure, it will delay your application, invariably at a time of urgency.”

If your tax affairs are not up to date, or you owe the receiver money, you will not receive the clearance certificate you need. “And if you are in the process of claiming from a retirement fund, Sars will first deduct the amount owing to them. On the other hand, a longstanding filing record will give Sars confidence that you have not evaded taxes in the past.”

Record Keeping

Anyone who submits a return should be aware that Sars requires you to keep records for a minimum period of five years (from date of submission to the end of the 5th tax period thereafter).

“Even if you are not required to submit a return because you meet the requirements for exemption, Sars can request an audit of any or all of your tax affairs for any preceding five-year tax period,” said Hartzenberg.

“Ensure you keep record of your income(s), any claimed expenses, investment, retirement and medical aid tax certificates. Keep these records safe and in a format you can understand, write a short note explaining their relevance and retain this too.”

Read: 9 ways SARS is targeting you this tax season

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When you are not required to file a tax return