Basic deductions you can use to save on tax (how to get a tax refund)

Basic deductions you can use to save on tax (how to get a tax refund)

The tax season is offically coming to an end for non-provisional taxpayers in the next few days. But, even if you are planning for the next tax season, this article is for you as it will consider a few options/deductions that you can use to reduce your tax liability. Let’s consider these:


Medical aid credits:


Taxpayers can claim deductions (or tax credits) for medical aid schemes they contribute to. This can be applied where you contribute as a principal member or where you are not a principal member but pay for and on behalf of someone like a close family member. The credits depend on the number of beneficiaries of the medical aid. The more the beneficiaries the more the credits one can get. For the taxpayer or the first beneficiary, the tax credit is R332 for the 2022 tax year (R319 – 2021), R664 for the taxpayer and one dependant (2022 or 638 for the 2021 tax year0 and R224 for any additional beneficiary (215 for the 2021 tax year.)


Retirement annuity:


If you make contributions towards a pension, provident fund or retirement annuity, you can also claim deductions on taxable income. Taxpayers are allowed to deduct up to, from their taxable income, 27.5% of their remuneration of taxable income, whichever is greater, up to a maximum of R350 000 per tax year if they contributed to a retirement annuity fund, pension or provident fund.


Therefore, it is important that the taxpayer examines and calculate their annual contribution in order to fully take advantage of this tax benefit. However, there is no tax benefit once you withdraw from this fund (we will talk about withdrawals in another publication.)


Donations:

The taxpayer can also claim donations against his/her taxable income. There is a catch though. The deduction is limited to 10% of the taxpayer’s taxable income before claiming donations as a deduction (so, if the taxable income is R300 000, the claim cannot be more than R30 000.) The charitable organisation the taxpayer gives a donation to must also furnish the taxpayer with a Section 18A certificate, not just a receipt.


Home office expenses.

We have previously written about home expenses here. So, if you need a more detailed guide, please refer to that article. However, let’s cover a few things here too. Certain expenses that a taxpayer incur as a result of working from home can be claimed as a deduction against taxable income provided certain conditions are met:


  • The employer must allow the taxpayer to work from home. So, you can’t just work from home because you want to. Your employer must give you express permission to work from home.

  • The taxpayer must spend more than half (50%) of their total working hours working from their home office.
  • The part of the home in respect of which a claim is submitted must be occupied for purposes of a “trade”, as defined in section 1. So, in essence, there should be a specific part of the home that is used exclusively for this purpose. As an example, a specific set aside office must be kept aside for the trade. A taxpayer meeting with a client in the bar area of their home may not qualify for these deductions.
  • Building from the point above, the part that is so occupied must be specifically equipped for purposes of the trade. So, it is important that the space/office must be specially fitted with the relevant instruments, tools and equipment required for the taxpayer to perform their work.
  • The part must be regularly and exclusively used for purposes of the trade. As an example, taxpayers who earn a commission but who spend the majority of their time on the road visiting clients and performing their work at the client’s premises do not qualify for home office expense deduction.

Refer to our previous article on home office expenses for further details and examples of expenses that a taxpayer can get as a deduction for working from home.


Tax-free investments:

These accounts are offered by various financial institutions. The tax benefit is that any income (interest, dividends, REIT payments and capital gains) accrued or received from these funds are exempt from tax. For example, interest income earned is fully exempt from tax as opposed to interest earned elsewhere, which can be exempt only up to certain amounts as per the Act. Though the income is exempt, this must still be included on the taxpayer’s tax return.


Contributions to these funds should not exceed R33 000 annually and a lifetime agreement of R500 000. Any contribution above these amounts triggers a tax on the income earned.


Foreign income:

Ever heard f the 183 days rule? Individuals working overseas for a 183-day term could claim back tax deductions on income earned for the period there were outside the Republic. After 1 March 2020, the exemption is the first R1.25 million of foreign employment income earned by a resident will qualify for an exemption for tax years commencing on or after 1 March 2020.


Travel claim:

If you use your vehicle for work purposes and you are able to prove to SARS that you used your vehicle for work purposes, then you can claim a deduction on it. The catch, keep a travel logbook. Do not “manufacture one!”


Wear and tear:

The world is changing and often employees will use their own tools and equipment to carry out their work. If you are using goods/tools that you bought with your money for work purposes you are entitled to claim depreciation on these tools/assets. These can be computers or laptops. The catch, the cost of the assets must be written off over a time stipulated by SARS and you must be able to prove that the asset/tool was used for work purposes. For example, computers are written off over a period of 3 years. Assets that cost less than R7000 can be written off in full in the year of purchase.


Business expenses:

For the purposes of this article, we will treat a business as an unregistered business such as rental, sole proprietors and freelance businesses run by a taxpayer in their personal capacity. The taxpayer will get deductions for all business running costs as long as they are directly related to the business and as long as they can prove that they are business expenses. The expenses can include but are not limited to:


  • Interest on bond payments (note: not the full bond instalment)

  • Rates and taxes paid on the property
  • Water and electricity
  • Levies
  • Depreciation on furniture in the property
  • Advertising and/or rental agency fees
  • General maintenance and repairs cost like garden services, repairs and painting, cleaning services etc
  • Wear and tear
  • travel costs
  • Business running costs

Capital gains:

Individual taxpayers get an annual exclusion of R40 000 on capital gains. This means that they will start paying for CGT for any gain above R40 000. Also, only 40% of the gain is included in taxable income. If you are holding shares for investment purposes, this may be applicable to you. There can be 0% tax on your capital gains when:


  • The sum of capital gain and losses does not exceed the annual exclusion;

  • The sum of capital gain is less than or equal to the sum of capital losses 9which means your gains set off against your gains); or
  • Taxable income falls below the level at which normal tax becomes payable, that is if your combined income plus gains fall under the tax-free threshold.

For comparative purposes, CGT for individuals is smaller than it is for companies. This is important if you are going to consider holding your investment asset in your personal capacity or in a company. Individual taxpayers, assuming a higher tax bracket, pay a total of 18% on capital gains compared to 22.4% for companies.


Another very important aspect of CGT is the primary residency exclusion. “For the 2018 and 2019 years of assessment, the first R2 million of a capital gain or loss on disposal of a primary residence must be disregarded. This concession, known as the primary residence exclusion, means that most individuals will not be subject to CGT on the sale of their primary homes.”


We will discuss this concept in our future publications. For now, we just wanted to bring to your attention that you may qualify for this exclusion if you sold your primary residence.


There are various other incentives that can be applied by a taxpayer to reduce their tax liability, such as accelerated wear and tear on properties, urban development zones allowances, Section 12J, and certain investments that give the taxpayer some tax benefits. We will discuss these in our future publications to avoid an information overload.


Did you find this article helpful? Do you need help with your taxes? Give us a shout.

How to close a business in South Africa

How to close a business in South Africa

Who should be reading this article? 

  • Anyone whose business is no longer trading and wishes to wind it down
  • Anyone who wants to liquidate their business
  • Anyone who has lost interest in their registered business and now wishes to discontinue it

KEY TAKE AWAY POINTS:

  1. Pay all outstanding creditors
  2. Collect from all debtors if any
  3. Cancel all contracts (ensuring that all the conditions and terms of doing so are understood and taken care off)
  4. Inform all employees and customers of the intention to close down the business
  5. Sell your business assets (including the cars) and stock (if any) or write off any assets or inventory no longer – S basically liquidate the business
  6. The last step would be to distribute any cash or assets that remain in the business
  7. Deregistering at the CIPC
  8. Deregistering with SARS (all tax numbers)

Why may you consider closing a business off?

There are many reasons for this. But, you may consider closing off your business because of any of the following reasons (not limited to this list:)

  • The business was negatively affected by COVID and there is no possibility of the business doing well again in the future
  • The business has become unprofitable and it no longer makes sense to continue operating
  • Your focus or passion has changed and you would like to focus on something else
  • The project for which the business was designed has ended and will not be resuming again in the future
  • The most profitable clients of the business have left and you do not see the business attracting any new clients
  • Changes in technology that drive your product or business out of the market
  • You no longer have the cash flow or working capital to keep the business going

If you are considering closing down your business, the following steps and considerations are important:

1. Have an exit strategy:

Truly speaking, this should happen before there is a need to close down a business. This is because we will all exit from our business one way or the other. Some of the exit reasons are what we have already highlighted above. But, it could also be due to health reasons, death, new investors, a merger or sale of the business or part of the business. Whatever the reason, every business should have an exit and succession plan in place.


Your goal here is to formulate a plan of how you will close down the business or exit from the business. Without a plan, things usually go wrong and you may be caught unaware along the way.


2. Notify your employees:

After your customers, your employees are an important asset to the business. Besides, they have families to feed and lives to live. Leaving it until late may place an unnecessary mental burden on them and leave them with little time to look for alternative employment. As an alternative, use your relationships to find then alternative employment.


But, the important point here is to keep the employees in the loop, not in the dark, about what is going on. Also, decide on who will handle the communications with the employees. It is also important to decide and communicate their terminal benefits and how these will be paid.


3. Notify your clients

It is important to notify your clients in time so that they have time to look for alternative suppliers. Also, you may need to collect anything that they still owe you. It is important that you decide how you will collect and how they will be notified.


4. Collect your outstanding debts

Plan your business closure around your existing collection policies and avoid giving new credit lines to existing or new clients.


You also want to collect any outstanding debts before you close the business because it may become difficult to get payments once you have already closed off the business. Some businesses’ financial policies do not allow payments to individuals.


Avoid announcing that you want to close off your business before you collect outstanding debts because some clients may just stall on payments hoping it will all go away.


You can offer settlement discounts to encourage customers to settle their accounts. An alternative is selling these accounts to a collecting agency.


5. Notify your creditors and pay outstanding debts

Inform your creditors of your decision to close and ensure you have a plan to handle the outstanding debts.

SARS may be one of those creditors. Ensure that you have filed all your returns and that every return is paid for. If you are unable to pay them, there are processes you can follow to ask for a compromise or a repayment plan (Click here to read more about compromises and repayment plans here.)

There may be specific laws on how you may pay your creditors. Ensure you are familiar with these and follow them in settling your creditors. If you are not sure, enlist the services of a lawyer.


6. Sell your business and operating assets 

If you can, package some of the cash-generating units that are still functional and profitable and sell these to interested parties. If this is not possible, you may want to sell the assets in the business including all the inventory, vehicles and other operating assets you may still have if there is a market available for them.


7. Deregister the business

Once you are satisfied that all processes are complete, it is now time to deregister your business with the CIPC. This is to inform the CIPC that your business is no longer in existence.


After this is done, inform SARS that you have deregistered the business. Also, apply to have all tax types (numbers) deregistered. This is to clear you of future tax compliance burden since your business is no longer in existence.


You may contact us if you need help with:

  • Company registrations
  • Tax and VAT registrations
  • Closing off your business
  • Accounting and Tax
  • Business mentorship and advisory

How to hold SARS accountable

How to hold SARS accountable

The office of the Tax Ombud was established to act as a bridging gap between SARS and the taxpayer. But, taxpayers do not always have a direct line to connect with the Tax Ombud. A taxpayer may lodge a complaint with the Tax Ombud after they have exhausted all the SARS complaints mechanisms unless they are compelling circumstances for not doing so.  Otherwise, the process below will have to be followed:


There are three ways through which one can lodge a complaint with SARS:

  1. Via eFiling. See the step-by-step guide on how to lodge a complaint via eFiling. Please note that you have to be registered on eFiling to be able to do this. You may not download or print the form to send it by any other means.
  2. By visiting the branch. If you do, you may need to ensure that you have spoken to all relevant higher people before you leave the branch
  3. By calling the SARS Complaints Management office (CMO) on 0860 12 12 16.

Here are a few tips on winning the battle against SARS poor service/administrative issues and making sure you have a winnable case when you approach them or the Tax Ombud:

 


Be specific: 

If you have a complaint, it is better to call the Complaints Management Office (CMO.) If you call SARS contact centre to get a reference number, specify that it is a complaint with a complaint, specify that it is a complaint and not a follow-up. If you keep calling the call centre and saying you are following up, it may remain just that, a follow-up. You need to specify that you have a complaint so that it is treated as one. Some complaints will need case numbers, make sure you call the contact centre to get one.


Try again: 

Sometimes, a complaint lodged on eFiling may be rejected for one reason or the other. If you feel you have a  compelling case, pick up the phone and call the CMO so that they may record and lodge the complaints on your behalf. You may also call them if you are not sure how the process works on eFiling or if you are too far from a SARS office. For example, I once lodged a complaint about a delayed refund (because refunds should be paid 7 workings days after verification or audit is finalised) but the system kicked me out and rejected my complaint. The complaint was successfully lodged after calling the CMO.


Build a compelling case:

The most important thing to do when dealing with SARS is to build a good case, this is whether you are raising a complaint, an appeal or an objection. You will need a system to record your interactions with SARS (at each touchpoint with them). You also need to store documents and supporting documents relevant to the taxpayer’s case. The system of recording your interactions with SARS should allow you to build a timeline of how the case is developed and to ensure that you have all the documents you need for this case.


One such system is to make sure each client file/folder contains relevant subfolders that will help you gather the important and necessary information. The other is to build a dashboard that records the timeline and communications with SARS. This can take any form, for example, Word or Google docs, a task management tool like Asana, Trello or Monday.com.


NB: You do not do this because something has gone wrong, but because things may go wrong and often they do go wrong. Below is an example of client folders that tax practitioners or individuals can use:


The advantage of doing things this way is that you will save yourself a lot of time when doing the actual complaint, even an appeal or objection. The Tax Ombud form will ask you to summary your case in chronological order. So, if you had been building a case over time, this process will be a breeze. You have all the facts and timeline at your fingertips.


 

Are you frustrated with the way SARS has handled your affairs? How can we help you? Click here to contact us

Owing SARS, what are your options?

Owing SARS, what are your options?

If you follow my posts, you would have come across one of my articles that dealt with the approach SARS has taken to deal with the non-submission of a tax return. This is a follow up to this article.


So now you read that SARS will prosecute you for non-submission and charge you an R5 600 fine if convicted (of course, you will be convicted because there is overwhelming evidence against you/your company that you did not submit a few tax/vat returns.) You then went on to submit all your outstanding returns but you now owe SARS large sums of money.


Taxpayers are required to be fully compliant in all their tax matters by submitting and paying their taxes on time. If taxpayers are not compliant or have outstanding tax debt the SARS Debt Management department is committed to assisting businesses and individuals to become fully compliant. There are a few avenues that SARS uses to assist in this regard.


How much do I owe?

If you are not 100% certain how much you owe SARS, you will need to contact their call centre to enquire about your outstanding balances. If you stay not far away from a SARS branch, a visit to the SARS branch would not kill you. When you visit, just ensure you have all your particulars with you to avoid being turned away. Lastly, if you were registered for e-filing, run a statement of account to see how much you owe SARS. Your next step is to make the outstanding payment to SARS. Contact SARS or your tax practitioner to help you load a payment that can then be released from your bank account.

What if I can’t pay the outstanding amount now?

Every taxpayer must be aware that it is best practice to always file a tax return on time in order to avoid penalties and interest. But, if you are currently unable to pay your taxes, please contact SARS without delay. The following options may be available to you:


  1. Payment arrangements: 

Under certain circumstances, SARS can reach an agreement with a taxpayer to defer a tax debt for later payment or for payment by instalments. A deferred payment arrangement is s when a taxpayer can not settle the full amount owing to SARS immediately and want to apply for a payment plan to settle the debt. Under this option:


  • SARS has the option to decline the request.
  • Interest will accrue on any unpaid debt.
  • If you don’t adhere to the conditions of the payment arrangement the payment agreement will be terminated and normal collection proceedings will resume.
  • The taxpayer must suffer from a deficiency of assets or liquidity, which is reasonably certain to be remedied in the future.
  • Notwithstanding this deficiency, the taxpayer must anticipate that there will be income or other receipts which can be used to satisfy the tax debt.
  • At the time of concluding the agreement, the prospects of collecting the tax debt must be poor or uneconomical, but likely to improve in the future.
  • Moreover, the deferral should not prejudice the collection of the tax debt

2. Compromise agreement:

In certain circumstances, a compromise may be requested on taxpayers’ outstanding tax debt. A SARS Debt Compromise is a process whereby a taxpayer requests that SARS permanently “write-off” a large portion of their debt, with the balance being paid in full by the taxpayer immediately on the condition that the taxpayer complies with any conditions as may be imposed by SARS.


A compromise cannot be considered if the taxpayer disputes the debt. Therefore while a matter is under objection or appeal, a compromise cannot be considered. If the taxpayer wants to compromise he has to withdraw his objection or appeal.


What if you do not agree with the debt? 

If you are not in agreement with your tax debt, you may lodge a dispute.  To lodge a dispute please go to objections and appeals. Even though you are disputing the tax debt you remain under obligation to pay the debt whilst your dispute is being handled.

Why you should consult Eva Financial Solutions if you need a debt arrangement or compromise
  • We deliver on our promise
  • Compromise solutions are difficult to obtain
  • For this reason, it is important that it is handled by qualified and dedicated tax practitioners.
  • We have a team of experts who will always work to get the best result.
  • Click here to contact us
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