When SARS looks at your financial affairs you won't pay tax on the gross income you earned i.e the total of your payslips, bonus, wages, salary earned and dividends to name but a few, but rather on your taxable income. This is the total after reducing your gross income with deductions and exemptions. And that's where we'll be spending some time in this article.
What is a tax deduction?
While deductions are perfectly legal strategies for saving money on your taxes, many South Africans are in the dark as to how they work. A tax deduction is an expense you can write off to reduce how much of your gross income is subject to taxes. This ends up bringing down your tax liability (a.k.a. how much you owe).
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The Income Tax Act has a boatload of deductions for which you may be eligible, if you know where to look.
What tax deductions should I be on the lookout for?
The following deductions are worth your attention when filing your tax returns as they could drastically lower your taxable income:
Savings for retirement
If you contribute to a pension, provident or retirement annuity fund, you’ll qualify for a tax deduction up to 27.5% of your annual income, limited to no more than the actual contributions you made. The tax deduction is capped at R 350 000 per annum.
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FOR EXAMPLE: If Vukosi earns R 228 000 during the 2023 tax year, and saves R 2 375 per month in a retirement annuity fund (well done Vukosi!) it means he’s saved R 28 500 for the year. He can deduct the full amount as its below 27.5% of his annual income (which would be R 62 700). This means that Vukosi’s annual income, for tax purposes, drops to R 199 500, saving him R 5 290 in tax for the year (which is the difference in tax due between R 228 000 and R 199 500).
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It’s important that you’re not just saving for retirement to enjoy a tax saving benefit (i.e you should be putting more away than what you’re getting back in tax). The long-term benefits of having private retirement funds are certainly going to see you being comfortable in those golden years, which is what we’re aiming for.
How do I claim this expense on my tax return?
Saving towards a Pension or Provident Fund is always done via your employer and therefore your contributions will reflect as a deduction on your IRP5. Your IRP5 is sufficient proof for tax purposes and you don’t need to do anything else on your tax return to claim these deductions.
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However, a Retirement Annuity (RA) is a retirement fund for individuals who are self-employed, or whose employer doesn’t offer a RA benefit as part of their remuneration package. In order to claim this tax break, you’ll need to have proof of your retirement contributions in a certificate called a RAF Contribution Certificate. This is also known as an IT3(f). This is issued by the financial house you’re saving with, or shown as a deduction on your IRP5 from your employer (if they’re paying it on your behalf as a part of your overall remuneration).
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Note however, that you will need the tax certificate from your investment house to claim the deduction for RA contributions – if your employer pays it, your IRP5 won’t be sufficient.
Travel Expenses
If you’re receiving a travel allowance or the use of a car from your employer, you can claim the tax back for the kilometres you travelled for business purposes during the year.
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To claim travel expenses as a tax deduction, you’ll need to keep an accurate, detailed logbook of all business-related travel and maintenance expenses like petrol, oil, service costs and even insurance. The kind of information SARS will want to see is your kilometre reading on the first day of the tax year (1 March), the closing kilometre reading on the last day of the tax year (end February) as well as the make, model, year and value of your vehicle, plus the number of kilometres used for business and personal use.
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How do I get this deduction?
Choose the appropriate option to claim travel expenses when setting up your tax return and complete the relevant section, which could be Travel Allowance or Employer Provided Vehicle. Ensure you also have the vehicle purchase contract, vehicle expense invoices and your logbook of course.
Donations
Donate to a literacy charity each month? Or perhaps it’s a safety house for abandoned children that needs your financial help? If you’re contributing to the welfare of our country and supporting a charity, you’ll be pleased to know that any donations made to a registered Public Benefit Organisation (PBO) are tax deductible, up to a maximum of 10% of your taxable income. Any disallowed donation exceeding the threshold can be carried forward to the following year and deducted then, subject to the same limit. Remember that just because something is a non-profit organisation, doesn’t always make it a PBO. So, check with the organisation you’re giving money to if they’re allowed to issue you with a PBO certificate (S18A).
How do I get this deduction?
Complete the Donations section in your tax return. As we mentioned before, SARS will only allow the deduction if the charity you’re donating to has a PBO number and has sent you a tax certificate for your donation (a section 18A certificate).
Using personal devices for work purposes
The work environment has changed. These days many salaried employees use personal devices like laptops for work purposes. If you’re using a device bought and maintained in your personal capacity for work, you may be able to claim the depreciation on the device as a tax deduction.
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This deduction requires a letter from your company stating that you have permission to use the device for work purposes, and that they’re not compensating you with an allowance for it.
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Depreciation rates are different from device to device. For example, a laptop will depreciate at a different rate to a cellphone. TaxTim offers a useful online wear and tear calculator to figure out the depreciation amount you can claim per device.
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How do I get this deduction?
Enter the depreciation amount in the ‘Other Deductions’ section of your tax return. Ensure that you have the purchase invoice for the asset (e.g laptop invoice), the letter from your employer and a calculation explaining the expense. For the calculation, just use the output from the TaxTim Wear and Tear Calculator!
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Please note that you can’t depreciate your car if you are an employee, as this deduction is only available for small assets used for work.
Home office expenses
If you’re a salaried employee but work mainly from home in a specifically dedicated space (like a study or office that isn’t used for any other purpose), you may be able to claim certain running costs associated with that space.
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These include:
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Rent
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Rates
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Interest on mortgage bond
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Depreciation on office equipment
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Electricity
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Maintenance (repairs – not cosmetic improvements)
You can’t claim all of your electricity expenses for example - the amount has to be proportional to the space used. For example, if your house is 100m2 and the office is 10m2, this means you can claim up to 10% (10/100) of costs that are attributed to the entire home. You’ll need to have accurate records of these expenses to prove your claim.
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Home office expenses can be a tricky one to justify, so check out the handy TaxTim home office decision tree to see if you qualify for this deduction.
How do I get the deduction?
Enter the home office expense amount in the ‘Other Deductions’ section of your tax return and ensure you have all the documents to back up your claim.
What is a tax exemption?
Exempt income refers to amounts that are received by individuals that will typically be included in their gross income, but that would be unfair to tax people on. Governments often use tax exemptions to incentivise investments, to provide relief to the poor and to ensure that certain organisations that are not directly involved in commercial activities do not pay tax.
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Let's have a look at how they affect each individual's taxable income:
Gross Income - Deductions - Exemptions = Taxable Income
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Because they reduce tax liability it is important for you to know which ones are applicable to you. Some prominent one's are discussed below:
Dividends
When you receive dividends from your share investments, they are generally exempt from your taxable amount. Please remember to keep tabs of all the dividend you earned during the year as you should be able to claim this exemption each year.
Tax Free Investments S12T
As an incentive to encourage household savings, SARS introduced s12T into the tax act. So what does this mean for me? You won't pay tax on any amounts earned in this account. Great stuff!
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There are detailed requirements on how much you can contribute each year. In 2023 the annual contribution limit is R36 000 for the tax year which means you can't put away more than that. If you do there will be penalties on the amounts.
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Moral of the story? Open a S12T tax free investment account as soon as possible!
Interest Earned
Depending on your age, SARS will grant you an exemption up to a ceiling each year. For the 2023 tax year, if you are under the age of 65, the first R23 800 earned will qualify for the exemption and if you are over the age of 65 then the first R34 500 will qualify for the exemption. Remember to request your interest earned certificates on your bank accounts to qualify for this benefit!
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This article has been distributed for educational purposes only and should not be considered as tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions or concerns.
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