Personal income tax
Who is liable for Income Tax?
All persons in receipt of taxable income are liable for income tax. It is important to note that in the case of married couples husband and wife are regarded as separate taxpayers in respect of their respective incomes.
When must a Tax return be submitted?
A taxpayer is required to submit an income tax return if he she receives net remuneration exceeding R60 000 for the year receives remuneration (irrespective of the amount) which is not net remuneration for example -
a. remuneration which is taxed at average rates of tax such as lump sum benefits from pension funds
b. remuneration which is subject to allowable expenditure exceeding 1
c. remuneration received which is not net remuneration from standard employment such as remuneration from part-time employment or an annuity with the exception of an annuity from a person provident or benefit fund
d. an allowance or advance in respect of travelling expenses
e. remuneration against which an assessed loss may be set off
Examples of income which is not remuneration
a. business income
b. investment income
c. rental income or
d. farming income.
After the end of a year of assessment an income tax return is issued to every person who is registered as a taxpayer. If a person is registered as a taxpayer but has not received an income tax return it is that persons responsibility to request a return from the Receiver of Revenue with whom he she is registered. After a taxpayer has received an income tax return the taxpayer must complete it and return it to the Receiver of Revenue within the period prescribed on the form.
Under the SITE system a taxpayer is not required to submit an income tax return if his her net remuneration from standard employment does not exceed R60 000 (or the annual equivalent thereof if the taxpayer was not employed for the full tax year of assessment by one employer) and provided the taxpayer received no income from a source other than such remuneration. If a taxpayer who is liable only to SITE receives an income tax return it must be completed and returned to the Receiver of Revenue.
Pay-as-you earn system of collection (PAYE)
The Fourth Schedule to the Income Tax Act comprises of two systems of tax collection namely Employees Tax (of which SITE forms a part and Provisional tax.)
Employees Tax is an amount of tax which an employer deducts from all regular or periodic payments which are made to an employee. The purpose of Employees Tax is to ensure that the taxpayers income tax which is due in respect of remuneration received is settled at the same time that it is earned. The PAYE system is not based on a calendar year but on a year of assessment within which there are tax periods. A year of assessment commences on 1 March and ends on 28 (29) February the following year. If an employee commences on 1 March a tax period commences on the date the employee commences employment. A tax period ends on either 28 (29) February of a year of assessment or if an employee leaves employment before 28 (29) February on the date of cessation of employment. In terms of the PAYE system an employer is obliged to deduct employees tax on a regular basis from remuneration paid to employees.
The employer must pay the deducted amount to the local Receiver of Revenue within the prescribed period. To enable employers to meet their obligations each employee must furnish employers with personal particulars which are taken into account when the employer calculates the employees PAYE deduction.
With effect from 1996 year of assessment the income tax liability of individuals (natural persons) is determined without reference to gender or marital status. The only factor of importance is the age of the taxpayer that is if the taxpayer is under or over the age of 65 years. The taxpayer must provide the employer with a declaration stating whether he she is under or over 65.
The declaration is important as it enables the employer to deduct the correct amount of Employees Tax and also ensures that a correct SITE calculation is made at the end of a tax period or the year of assessment. In certain circumstances an employee may be entitled to have either no tax deducted tax deducted at a rate less than that shown in the prescribed tax deduction tables or tax deducted at a fixed percentage. However a tax directive must be obtained.
An employer is obliged to issue an IRP 5 certificate within the prescribed period to each employee to whom remuneration has been paid or has become due and from which Employees Tax has been deducted. This certificate serves as an acknowledgement of payments of Employees Tax. If there is a valid reason for Employees Tax not being deducted the employer must provide the employee with an IT 3(a) return.
Standard Income Tax on employees (SITE)
A system of Standard Income Tax on Employees (hereinafter called SITE) was introduced with effect from 1 March 1988. SITE is an alternative method of determining liability for normal tax and is not a separate tax payable in lieu of normal tax. Thus where reference is made to SITE being deductible from certain remuneration and PAYE being deductible from other remuneration this is done for convenience only as both deductions represent payments towards liability for normal tax. The main objective of SITE is to ensure that the tax deductions made by employers are as far as possible equal to an employees normal tax liability. This obviates the need for certain employees to submit tax returns at the end of the tax year. Under the SITE system a taxpayer is relieved of the obligation to submit an income tax return if -
the taxpayers taxable income consists solely of net remuneration e.g. salary allowances wages overtime pay bonus emoluments and pension
the taxpayers remuneration for the tax year does not exceed R60 000
the prescribed amount of SITE has been deducted from the remuneration.
SITE does not apply to all types of income but only to net remuneration received from standard employment or from an annuity payable by a pension fund provident fund or benefit fund during a tax period. In terms of this system Employees Tax is deducted from all remuneration which has been paid or has become due to an employee during a year of assessment. At the end of the tax period (and not at the end of every pay period) the employer makes a calculation to determine what amount of the employees tax deducted represents SITE. If an employees net remuneration is subject to SITE only the employer is obliged to refund any amount of tax deducted which exceeds the employees SITE liability. This provision eliminates the necessity of an employee having to apply to his her local Receiver of Revenue for a refund.
However under the following circumstances the local Receiver of Revenue will recalculate the employees SITE liability and refund any overpayment
if the employees medical expenses exceed 5 of his her taxable income (subject to a minimum claim of R1 000) or more than R500 in a case of a handicapped person or in the case of an employee of 65 years or older who incurred medical expenses which were not taken into account by the employer with the determination of SITE
if the employer did not take the employees retirement annuity fund contributions into account or
if the employer did not take the employees pension fund contributions into account.
To enable a person to claim a refund of SITE over-deducted an IT 11 return must be completed and returned together with the relevant IRP 5 certificate(s) as well as proof of payment of contributions expenses where required to the local Receiver of Revenue. IT 11 returns are obtainable from the Receiver of Revenue offices. If the employees net remuneration is subject to SITE and PAYE the local Receiver of Revenue will refund any overpayment of PAYE when an assessment is issued.
Provisional tax forms part of the PAYE system of tax collection. It is not a separate tax but simply a provision for the final tax liability for a year of assessment which will be determined on assessment. The payments which are made in August and February represent tax on the income which has already been earned during the year of assessment. Therefore this tax can be compared to employees tax deducted from remuneration before it is paid to an employee. The payments are made under cover of IRP 6(i) returns which are posted to taxpayers approximately a month before the date on which the provisional tax for the relevant period is due.
A taxpayer must register as a provisional taxpayer if he she -
a. derives income from sources other than remuneration (for example business or farming income interest rental income and building society dividends) where the taxable income from such other sources will exceed R1O 000 for the tax 2003 year
b. is notified that he she is a provisional taxpayer.
Taxpayers who are 65 years and older and whose taxable income for the relevant year of assessment does not exceed R80 000 are relieved of the obligation of making provisional tax payments.
However this concession will not apply where an individual derives income otherwise than from remuneration pension interest building society dividends or rental from the letting of fixed property.
A provisional taxpayer with a taxable income exceeding R50 000 is required to settle his her total income tax liability within seven months after the end of the year of assessment if the tax year falls on the last day of February. If the year of assessment of the taxpayer ends on another date the taxpayer is required to settle the total income tax liability within six months after the end of the relevant tax year. Failure to do so will unless reasonable grounds for such failure can be submitted result in interest being charged on any underpayment. In the case of an overpayment interest is paid on such overpayment. To facilitate this final settlement a provisional taxpayer is allowed a third voluntary payment within the six seven months following the end of the tax year.
ATP (Pty) Ltd. (Advanced Tax Practitioners)
Tel No: 0837007313
Fax No: 0866805277