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.)
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.)
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.
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.
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.
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.
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
- 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
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.