The upside of having to pay taxes? It means you make enough money to have SARS want a cut. Congratulations!
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The South African Revenue Service (SARS) sets minimum income on which it will collect taxes from individuals. Unfortunately, it's not a simple one size fits all threshold. In general, how much you can make in a year before you face a tax bill depends on a couple of factors: your age, whether you have a medical aid, whether you earned dividends and other details.
How much do you have to make to owe taxes?
Based on the latest information published by SARS, in the 2023 year of assessment (the tax year consisting of 12 months that starts in March 2022 and runs to February 2023) the different thresholds to start paying taxes, for different ages are set out below:
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Under 65 years old: R91 250 (annual income earned before you start paying taxes)
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At least 65 old but under 75 years old: R141 250 (annual income earned before you start paying taxes)
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At least 75 years old: R157 900 (annual income earned before you start paying taxes)
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But this is confusing because on my paycheck I might earn more than this total but still not have tax due to SARS? Why does this happen.?
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In order to understand this we'l give you a brief insight into the tax process that SARS follow to calculate tax payable by individuals.
Back up. What exactly is gross income?
It’s all the money you’ve made in the tax year (A tax year for individuals in South Africa starts on 1 March every year and runs to the end of February the following year. Typically if SARS refers to the 2024 tax year, they mean the year that started on 1 March 2023 and ends at the end of February 2024).
Let's get back to Gross Income. For most people, that mainly includes earned income from your salary, wages, tips or bonuses. It also includes unearned income, like dividends and accrued interest, as well as any gambling winnings.
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Gross income should not be confused with your taxable income. You can determine your taxable income by taking your gross income and subtracting certain deductions and exemptions (more on these in a separate article). That's why you can earn more than R91 250 on your payslips (gross income) for the 2023 tax year and still not have taxes due because of the deductions & exemptions that lower your taxable income to the R91 250 taxable income threshold as someone under the age of 65.
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Another thing you have to know more about is rebates! As this is the tool that SARS use to manage the minimum level at which taxes will be due.
What are rebates?
These are totals that SARS use to control the minimum amount of taxable income you need to earn to start paying taxes. And these amounts change based on your age to ensure that the older you become, the less the tax burden is on you as an individual.
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Let's use a basic example: If I am under 65 years old and I earn R91 250 in the 2023 tax year according to SARS I have to pay 18% tax. But due to the rebate of R16 425 I don't actually owe anything. This is how they calculate it: 18% of R91 250 is R16 425 and they reduce my tax bill with the rebate amount so that R16 425 less rebate of R16 425 = R0. That also means that for every rand above R91 250 I start paying 18% tax until I reach the next income level in the SARS tax table.
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So every year when the budget speech happens its so important to read about the changes in the tax thresholds and rebate amounts as this impacts your tax burden directly.
So what are these deductions and exemptions?
We'll touch on the details of these in a separate article as there are so many prominent ones you should know about. These situations have all developed over time where SARS recognised that it would be unfair to charge you tax on those amounts. They then decided to implement these deductions to your gross income to ensure you don't pay tax on every Rand that comes your way and also to incentivise you to do certain things each year. More on all of this later.
Other basics to know about?
On top of items that are included in your Gross Income, there are other forms of tax that could be applicable to you. Sometimes you will purchase an item of value, like shares in another company. SARS will then charge you tax on the profits you made while you held those shares and this is commonly referred to as Capital Gains Tax (CGT). It works on the principle of taxing you only on you economic profits of holding certain assets for certain purposes. Another article will delve into more details of CGT.
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Another type of tax you should be aware of is dividends tax. When you hold shares in a company often the company will want to share some of the profits they earned with their shareholders. They do this in the form of a dividend (a share in the profits earned). SARS will often tax the shareholder on those profits in the form of dividends tax at 15%. They do this because they want to incentivise people to invest in companies and that's why the tax rate is lower @15% than would be in the individual's income tax table that starts at 18% and goes up to 45%. More on the details of dividends tax later on.
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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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