Every person in South Africa is influenced by personal income tax. Personal income tax is levied on any income an individual earns during a year of assessment. All Income is subject to tax, but some exemptions and deductions exist to lower your tax liability.
Personal income tax is levied on a sliding scale based on your taxable income.
Tax rebates and thresholds
The tax rebate is the maximum amount of tax that an individual is exempt from paying in any particular year of assessment. The amount is announced by the minister during his budget speech.
Tax thresholds is the income that is exempt from income tax. When calculating the tax on the tax threshold you will find the the tax rebates.
Tax exemptions (Personal income tax)
Tax exemptions exist for the following sources of income:
- Foreign interest and dividends
Unused exemptions cannot be transferred to the next tax year
A tax exemption applies to the first R23,800 (R34,500 older than 65) interest an individual accrues during the year of assessment. If you annual interest exceeds the exempted amount the excess will be included in your taxable income.
Dividends are subject to dividends tax which is withheld by the company and paid to SARS on behalf of the taxpayer. All local dividends are exempt from income tax.
Foreign interest and dividends
A tax exemption of R3,700 applies to foreign interest and dividends received. The R3,700 should first be used to exempt foreign dividends and the balance can be used for interest.
Tax deductions (Personal income tax)
The following tax deductions are available for individuals:
- Current pension fund contributions
- Current retirement annuity fund contributions
- Medical and disability expenses
Current pension fund contributions
The greater of 7,5% of remuneration from retirement funding employment, or R1 750.00. Any excess may not be carried forward to the following year of assessment
Current retirement annuity fund contributions
The greater of 15% of taxable income other than from retirement funding employment, R3 500 less current deductions to a pension fund, or R1,750.00. Any excess may be carried forward to the following year of assessment.
Medical and disability expenses
In determining tax payable, individuals are allowed to deduct –
- monthly contributions to medical schemes (a tax rebate referred to as a medical scheme fees tax credit) up to R257.00 for the individual who paid the contributions and the first dependent on the medical scheme and R172.00 for each additional dependent; and
- in the case of –
- an individual who is 65 and older, or if that person, his or her spouse or child is a person with a disability, 33.3% of qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 3 times the medical scheme fees tax credits for the tax year.
- any other individual, 25% of an amount equal to qualifying medical expenses paid and borne by the individual and an amount by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7,5% of taxable income (excluding retirement fund lump sums and severance benefits)
Deductions in respect of donations to certain public benefit organisations are limited to 10% of taxable income (excluding retirement fund lump sums and severance benefits). The amount of donations exceeding 10% of the taxable income is treated as a donation to qualifying public benefit organisations in the following tax year.