South African Income Tax Law
The South African Revenue Service (SARS) collects income tax on all businesses and individuals making more than R64,000 per year. Taxation in South Africa is governed by the Income Tax Act of 1962.
South Africa has a very progressive tax scheme, slanted steeply against high income earners, but with many exemptions, allowances and benefits available for all. All employed adults are taxed separately in South Africa. There are no special provisions for families or spouses to be taxed together. The 2009 tax year in South Africa ended Feb. 28, 2010. All U.S. dollar conversions reflect market exchange rates on May 10, 2010.Basic Rates
From R64,000 to R132,000 the income tax rate is 18 percent. From R132,001 to R210,000, the rate is a combination of a payment of R23,760 plus 25 percent of all income earned above R132,000. From R210,001 to R290,000 there is a flat payment required of R43,260 plus 30 percent of earnings above R210,000. From R290,001 to R410,000 ($54,712), the flat payment required is R67,260 plus 35 percent of earnings above R290,000. From R410,001 to R525,000, the payment balloons to R109,260 plus 38 percent of earnings above R410,000. Finally, people earning R525,001 and above pay R152,960 plus 40 percent of the amount above R525,000.
Calculations
Some example calculations illustrate what South Africans really end up paying in tax. Someone earning R300,000 in 2009 paid R67,260 plus another R3,500 for a total tax liability of R70,760. This represents a combined rate of 23.6 per cent.
Someone earning R600,000 in 2009 paid R152,960 plus another R30,000 for a total tax liability R182,960. This represents a combined rate of 30.4 percent. Most income earned from investments and trusts is taxed at a rate of 40 percent.
Payroll Tax
South Africans paid through regularly occurring wages have their taxes deducted automatically from their pay through a scheme called Pay-As-You-Earn (PAYE). For those earning less than R74,000, PAYE represents the only tax payment required. There are deductions available for many low wage earners under this scheme (See Resources).
Aged Benefits
For people 65 or over, the personal tax exemption rises from R64,000 to R89,600 . Also, people 65 and over who earn all of their income through rental payments, remittances, interest payments or dividends receive an exemption for the first R120,000 of their annual income. The first R300,000 of income from a retirement fund is tax exempt. Also all medical expenditures of those 65 or older may be claimed as a deduction.
Other Exemptions
Adults younger than the age of 65 can deduct health insurance payments up to R625 per month for themselves and R380 for each dependent. Other additional health costs can be deducted until they represent 7.5 percent of their total taxable income. Health care costs for disabled children and spouses are fully deductible, regardless of the amount. Investment income is exempt between the amounts of R3,500 and R21,000, depending on the taxpayer's country of residence and what country the investment income came from.
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