Tax might not be the most exciting topic, but it certainly is an important one. By working through the jargon and learning the basics you, as a taxpayer, can learn how to better utilise our tax system.
Not to mention the fact that you can gain a better understanding as to how and why money mysteriously disappears off your paycheque every month.
Tax in general is collected in the form of either provisional or non provisional tax:
Provisional taxpayers don’t earn a fixed salary. Due to the fact that their income fluctuates SARS allows provisional taxpayers to make two or three tax payments throughout the year to avoid having to pay one large chunk of tax every year.
Non-provisional taxpayers on the other hand earn fixed salaries and normally pay their tax contributions to SARS via PAYE which is deducted off their paycheques by their employers every month. Non-provisional taxpayers submit one tax return every year.
PAYE: What It is and How It Works
For the majority of taxpayers non-provisional tax is applicable, hence the PAYE deductions that go off their payslips every month.
PAYE stands for “Pay As You Earn” and refers to Income Tax which is withheld by your employer and then paid over to SARS on your behalf. Your total income including bonuses, fringe benefits and other allowances, is taken into account for this calculation.
Your employer determines your tax payable by making use of the SARS Income Tax tables:
Tax rates for individuals
Taxable Income (R)
Rates of tax (R)
|0 – 165 600||18% of each R1|
|165 601 – 258 750||29 808 + 25% of the amount above 165 600|
|258 751 – 358 110||53 096 + 30% of the amount above 258 750|
|358 111 – 500 940||82 904 + 35% of the amount above 358 110|
|500 941 – 638 600||132 894 + 38% of the amount above 500 940|
|638 601 and above||185 205 + 40% of the amount above 638 600|
Tax rebates for individuals
|Primary Rebate||R 12 080|
|Secondary rebate (for persons 65 years and older)||R 6 750|
|Tertiary rebate (for persons 75 years and older)||R 2 250|
|Persons under 65 years||R 67 111|
|Persons 65 years and older||R104 611|
|Persons 75 years and older||R117 111|
PAYE basically ensures that an employee’s income tax liability is settled at the same time that their income is earned. The responsibility to deduct this form of taxation lies with the employer.
In cases where the taxpayer has only worked part of a tax year or where tax deductions are applicable, individuals may claim a tax refund due to the fact that too much tax was paid.
PAYE Case Studies
Example where an employee only works part of the year
John worked for 4 months for the 2013/2014 tax year, from 1 March 2013 to 30 June 2013 (the 2013/2014 tax year runs from 1 March 2013 to 28 February 2014).
He earned R15 000 per month, coming to a total of R60 000 earned for these 4 months worked.
The employer deducted PAYE of: R1777.33 x 4 = R7109 in total (rounded off).
However for the 2013/2014 tax year John was under the tax threshold of R67 111 (see Tax Thresholds above) and therefore should not have paid tax at all.
In this case since the tax has been paid but none was due, the employee will be entitled to a full refund of R7109 when they submit their tax return.
Example where tax deductions are applicable
John worked for the full 2013/2014 tax year, from 1 March 2013 to 28 February 2014.
He earned R15 000 per month, coming to a total of R180 000 for this tax year.
His employer deducted PAYE of: R1777.33 x 12 = R21 328 in total (rounded off).
However John made monthly contributions of R800 towards a Retirement Annuity coming to a total of R9600 for the year.
This amount can be claimed as a deduction for taxation purposes and can therefore be deducted from his gross income when calculating his tax liability for the 2013/2014 tax year.
His Retirement Annuity contributions of R800 fall within his allowed tax deductible Retirement Annuity contribution range (see What is a Retirement Annuity? for more details as to how much you can contribute for taxation purposes).
This example assumes that he doesn’t belong to a Pension or Provident Fund.
Due to the fact that he made R9600 worth of Retirement Annuity contributions his gross income comes to a total of R170 400 (R180 000 – R9600) for the 2013/2014 tax year which means that he will pay less tax for the year.
His actual tax liability for the 2013/2014 will then be R18 928 as opposed to R21 328. Which means that he will save R2400 in tax as a result of his Retirement Annuity contributions (R21 328 – R18 928).
This example illustrates how certain financial products can be used to reduce your overall tax liability.
John effectively only contributed R7200 towards this Retirement Annuity as the remaining R2400 would have been spent on tax anyway had he not made these retirement savings contributions.
For all your financial planning and consulting requirements contact Raul Jorge.
Tax Tim. (2013). How does Pay-As-You-Earn (PAYE) work?. Available: https://www.taxtim.com/blog/how-does-pay-as-you-earn-paye-work. Last accessed 13th September 2013.
SARS. (2013). Employees’ Tax – Pay-As-You-Earn (PAYE). Available: http://www.sars.gov.za/TaxTypes/PAYE/Pages/default.aspx. Last accessed 13th September 2013.