When you don’t need to submit your tax return
With the deadline for tax submissions approaching fast, everyone is scrambling to submit their tax returns. Not everyone is required to file their tax return, but today I want to convince you to do it anyway. According to the South African Revenue Service (SARS) you do not have to submit your tax return if the following conditions apply to you:
- You earned less than R350 000 in the relevant financial year.
- This R350 000, came from one employer.
- There are no other sources of income.
- You did not receive a travel allowance.
- You do not want to claim any deductions.
So why would SARS be fine with you not submitting a tax return? Well like all other things in life that seems to good to be true, it is beneficial for them if you do not submit. Since we are all lazy at heart, SARS exploits this. They allow you to be lazy when it means additional income for them. So today I want to look at a few tax scenarios, to point out how you are being screwed when you do not submit your tax return.
Unemployed for a few months
Let’s assume that you start working at a new company in July. You were either unemployed until then, or you were still studying for the first half of the year. So, for 8 months of the year you were earning a salary, and each month you receive a salary of R40 000. Since you are working for an employer, you pay tax every month. This is something called Pay As You Earn (PAYE). PAYE assumes that the amount you received this month, is what you will receive every month. On R40 000 you will pay R8 893 in tax every month. At the end of the financial year, you have already paid R71 144 in tax.
However, when you submit your taxes at the end of the financial year, SARS looks at your income for the whole year. The total income you received was R320 000. So, according to SARS you do not need to submit your taxes. Had you submitted your taxes however, e-filing would have calculated that your liability for the year is R54 173. This is because you did not earn anything for the first 4 months. If you now subtract the amount you should have paid (R54 173) from the amount you have already paid (R71 144), SARS would owe you R16 971. If you do not submit your tax return, you forfeit this amount.
You don’t trust the public healthcare system, so you get a medical aid. However, you are on a budget and decide to get a hospital plan. This comes at a monthly cost of R1 700. You can subtract R303 of this monthly contribution from your taxable income. This is a tax break of R3 636. Since an annual income of R320 000 puts you in a tax bracket of 31%, the tax break of R3 636 will reduce your tax by another R1 127. You would forfeit this amount as well.
Saving for retirement
Everyone dreams of a glamorous retirement camped out on a beach somewhere. You are pro-active and take out a Retirement Annuity (RA) to accomplish this goal. Everyone says that the golden number when it comes to retirement savings is 15%. So, you save 15% in you RA. This is an average of R4 000 per month, or R48 000 per year. A further tax break of R48 000 will reduce your tax by another R12 097. Your RA contributions up to 27.5% of your salary can be deducted from tax. You also forfeit this amount.
Contributing to a charity
Lastly you are a charitable person and you love donating to worthy causes. This year you want to donate to a wildlife trust that has a registered PBO number. You donate 5% of your salary to this trust and they issue you with a section 18A certificate for this donation. This donation of R16 000 per year is also tax deductible. A R16 000 deduction will save you another R3 665.
All of this adds up and finally you end up having to pay R36 432. Compared to the R71 144 you have already paid it is a massive reduction on tax of R34 712. This amount is paid back to you when you submit. If this doesn’t motivate you to sit down one evening and submit your taxes, nothing will. Just know that when you do eventually start earning more than R350 000 and start submitting your taxes, you are more likely to be audited since your tax history is incomplete. You have two days left, start submitting those returns.
Be safe out there,