September Income Tax Guide. A step-by-step guide to submitting your income tax returns via e-filing.

Transcription

1 September 2013 Income Tax Guide A step-by-step guide to submitting your income tax returns via e-filing.

2 Introduction At Direct Axis we re committed to creating a healthy and prosperous future for all South Africans. While none of us enjoy paying tax, it is essential that the Government is able to collect revenues to support public service delivery and investment in the country s infrastructure and people. We ve put this guide together to help people understand how to submit a return using the South African Revenue Service s e-filing system. And as tax is often seen as being a boring and dry topic we ve included some fun statistics. 22 Remember this date! 22 November Deadline for all non-provisional tax payers who submit their return via e-filing. What is tax? Governments around the world use taxes as a way of raising money to finance their endeavours. To use a simple analogy, if you go to a gym, you more than likely pay a monthly membership fee to use its facilities. Tax is the way that governments make us pay for using many of the services that the nation provides to the country, such as education, defence and the provision of roads. The first recorded instance of income tax was in the year 10 AD when Chinese emperor Wang Mang brought in a tax, 10% on all profits, for skilled labourers and professionals. Although there are many different taxes we have to pay, they generally fall into one of the following three categories: Personal income tax This is what we pay on our earnings. For most of us, our employers deduct it from our salaries in the form of PAYE (Pay As You Earn), but if we have other income, such as property rental, or make profits on selling items such as shares we need to pay tax on these (this is sometimes in the form of Capital Gains Tax). The amount of tax we pay depends on how much income we earn and the basic rate starts at 18% and rises to 40% for top earners. Consumption taxes These are taxes we pay when we buy things. VAT is the most visible of consumption taxes and in South Africa we are fortunate it is only 14% (the UK charges VAT at 20% whilst it is 25% in Denmark). Other consumption taxes include the levies we pay on petrol, tobacco, alcohol as well as customs and excise duties on imported goods. Company tax Companies that make profits also need to pay taxes. The current rate for corporate taxation is 28%. 2.

3 Index Should I submit a tax return?...4 I have to submit a tax return. What do I do know?...5 How to use e-filing...5 Sources...12 Did you know? Newspapers have such large-sized sheets of paper because of a British 1816 tax on newspapers. The knowledge tax was levied by page. In response, newspapers started using larger paper size to accommodate more text, thereby reducing the number of pages taxed. And, did you know this? Russian Emperor Peter the Great placed a tax on beards in He hoped that the tax would encourage men to have a clean-shaven look that was popular in Western Europe. 3.

4 Should I submit a tax return? Not all South Africans need to submit tax returns. This simple decision tree will help you understand if you need to register for tax and complete a return. START HERE Do you earn more than R per annum? Have you been working at the same company for one tax year (1 March 28/29 February)? NO YES You have to submit a tax return. You have to submit a tax return. NO YES Do you receive any additional income (rental income, etc)? Do you receive any allowance from which tax was not fully deducted? NO YES You have to submit a tax return. You have to submit a tax return. YES NO Do you have any medical aid policies, retirement annuities, etc. on which you can claim tax back? NO YES You DO NOT have to submit a tax return. You have to submit a tax return. 4.

5 I have to submit a Tax Return What do I do now? The easiest way to complete a return is to use SARS e-filing system. This is an online process and, if you ve got the right information to hand and follow our simple guide, it should be a breeze. How to use e-filing 1 Register for e-filing If you ve never registered for e-filing before, you have to do so in order to submit an electronic return. You will need the following information to register: income tax registration number identity number bank account details Go to click on register and follow the online instruction. Once the process is complete, you are registered for e-filing. 2 Login Use your username and password to log in and to start the e-filing process. 3 Open Your Tax Return Click on ITR12 to open your tax return. 4 Confirm that all the information that displays is correctt Check that all relevant employer-related info is complete. Compare what s on your electronic return with the information printed on your IRP5 to check that it is correct as well. Don t want to pay any income tax? Then move to any of these countries where there is NO income tax: Monaco, Kuwait, Bermuda, United Arab Emirates, The Bahamas, Saudi Arabia Great! You re getting there! 33.3 % complete! 5.

6 5 Create and complete all other sections that apply to you Answer the questions on the first page to build the rest of your tax return. As you complete sections, the pages will be created. If you are employed or receive a pension, the info on your supporting documents that relates to your salary or pension should already have been filled in. Use your documents to check that information is correct. If your additional earnings are from business activities or if you are self-employed or if you have deductions to claim, you have to complete the sections related to these yourself. 6 Ensure that you have all the necessary documentation Your IRP5/IT3(a) certificate(s). The certificates that you (and your spouse if you are married in community of property) received for interest earned on additional income sources. Financial statements that reflect any business income you earned. The certificates for retirement annuity contributions you made. Information that relates to any capital gains you have made. Documents that relate to medical expenditure, such as a statement from your medical scheme and proof of medical claims not paid by your scheme. If you or a member of your family is disabled, you will also need a completed Confirmation of diagnosis of disability form (ITR-DD). If you receive a travel allowance, you would need the odometer reading at the beginning (1 March) and at the end (28/29 February) of the tax year, as well as details of your business travel and/or costs involved. Any other information that relates to income that must be declared or deductions that you want to claim. Remember that even though you do not have to submit documents with your income tax return, you must keep them for five years after submitting your return. SARS could within this period ask you to submit the documents to verify the information you have declared. 7 Check your personal details Ensure that all your details as they appear on your tax return are correct. Pay special attention to your banking details. If any information is outdated, you have to update it. Did You Know? Income tax was introduced in the UK in 1188 by Henry II. He wanted to raise money for his third crusade against the Infidel. He raised a tax which demanded that each layperson in the UK paid a tenth of their income and all moveable property to the king. The tax was known as the Saladin Tithe. You re almost halfway! 48% complete! 6.

7 8 Investment Income Did you earn any local or foreign investment income? This excludes dividends on locally listed shares, which are tax-free. If you did, you have to declare it under Investment Income.! Good to know Check the certificates you received from banks, life assurance companies and unit trust companies these will show how much interest you earned from your investments. If you received interest on local or rand-denominated foreign investments from more than one investment or financial institution, add the amounts together and enter the total on your tax return. Convert foreign interest income and foreign dividends into rands before adding them up. Declare any tax you ve paid in foreign countries. SARS will decide if it qualifies. 9 Taxable Capital Gains Did you make any local or foreign taxable gains or losses? If you did, you have to declare them to SARS.! Good to know Each transaction that results in a capital gain or loss must be declared separately. Do not split the gains or losses if you are married in community of property. SARS will do this for you. 10 Any Other Income You do not have to complete this section if you earned only a salary, pension or investment income. But you must complete it if you earned: business or professional income (tax imposed on businesses incorporated under the laws of the Republic of South Africa), or rental income. Declare it under Local Business, Trade and Professional Income any other taxable income or accruals, like royalties. Declare it under Other Taxable Receipts and Accruals The 5 Countries with the Highest Tax Rates 1. Aruba (58.95% for anyone earning at least $ that s R ) 2. Sweden (56.6% for anyone earning at least $ that s R ) 3. Denmark (55.38% for anyone earning at least $ that s R ) 4. Netherlands (52% for anyone earning at least $ that s R ) 5. Belgium (50% for anyone earning at least $45,037 that s R ) South Africa Individual income tax rates vary from 18% (for anyone earning below R ) to 40% (for anyone earning more than R ) Keep going! You re getting there! 62% complete! 7.

8 11 Annual Medical Expenses Did you pay your own medical scheme contribution from your bank account or do you have any medical expenses that you did not recover from your medical scheme? If you answer yes to either question, you can claim for medical expenses. To claim for contributions Record the number of dependents on your medical scheme in each month of the year. SARS will then use this information to calculate how much of your contributions you can claim as deductions. To claim for medical expenses You can claim for three kinds of un-recouped medical expenses: medical expenses not related to physical impairment or disability. Record these expenses under the field titled State any Medical Expenses Not Recovered from Your Medical Scheme medical expenses related to a physical impairment that affects your ability to function mildly. Record these expenses under the field titled State any Physical Impairment Expenses not Recovered from Your Medical Scheme medical expenses related to a disability that you or a family member may have. In this instance, disability could refer to deafness, blindness or the necessity to use a wheel chair as a result of a permanent disability. Record these expenses under the field titled State any Disability Expenses not Recovered from Your Medical Scheme If you are over the age of 65, all qualifying medical expenses in these three categories will be allowed. No limitation will be placed on the medical expenses that you incurred if you are 65 years of age or older, or if you, your spouse or your child is considered a person with a disability as defined by SARS. Add up all of your expense and then enter the total in the relevant field. 12 Retirement Annuity and Income Protection Payments Retirement Annuity Contributions You can only claim for contributions made in your own name. The institution you make payments to will issue you a statement. Enter the amount(s) from the statement for your claim. If you contribute to more than one institution, calculate the total amount. You must declare any and all contributions, including those that were made through your employer. Income Protection Payments You have to declare contributions made to a policy to protect yourself against loss of income as a result of illness, injury, disability or unemployment. Record the amount paid under the section titled Retirement and Income Protection Contributions. Did You Know? Denmark is the first country to impose a fat tax. They are now taxing all foods which contain more than 2.3% of saturated fat. Don t stop now, you re almost done! 75% complete! 8.

9 13 Work Related Travel Expenses Against Allowance Do you receive a travel allowance from your employer because you use your vehicle for work purposes? If you do, you must: tell SARS how much of your allowance you actually spent on travel for work purposes. State if you used more than one vehicle. What to record: your car s registration number your car s cash value or cost price the opening kilometres, closing kilometres and business kilometres! Good to know Your mileage for the entire tax year should be recorded in a log book. Travelling between your home and your place of work is not considered to be business travel, thus you cannot add it to your claim. 14 Any other Deductions There are only a few other deductions that qualify: if you are paid a subsistence allowance because you are obliged to travel for business purposes and spend nights away from home donations made to an approved public benefit organisation in terms of Section 18A of the Income Tax Act depreciation of an asset, such as a computer, that you are obliged to use for work purposes home office expenses if you use part of your home regularly and exclusively as an office It s a numbers game million number of penalty notices submitted in 2012 (to approximately taxpayers with outstanding returns from previous years) the number of returns filed in the first 4 hours after the 2013 tax season opened in July R14.55 billion the value of tax rebates paid to taxpayers in seconds the time it took to assess 93% of all e-filing returns in million total number of tax returns submitted on time in million were from individuals with the balance from companies and trusts in 2012 R4 billion the total amount collected from tax penalties in 2012 So close! 85% complete! 9.

10 15 Get an Idea of the Possible Results You can calculate the possible outcome of your tax return just before you submit it. Do this by saving your return and then clicking on the tax calculator button. This will generate a tax calculation, of which the result will show you how much, if any, you are likely to pay SARS, how much SARS is likely to pay you, or whether you have paid the right amount of tax. 16 Submit and file your tax return Upon successful completion and filing of your tax return, you will receive an assessment from SARS that will state what you owe SARS or what SARS owe you. If SARS owes you any money, (last year they paid nearly 95% of all reimbursements within 72 hours) they will refund the money straight into your bank account. The assessment will also show how SARS reached the final amount, and it will stipulate which deductions SARS did or did not allow. If you re unsure about anything, look for the Help-You-eFile logo on the SARS efiling website. This allows you to ask a SARS agent to share your view of the efiling screen on your personal computer and give you guidance in real time. Where does my Tax money go? When Finance Minister Pravin Gordhan delivered the Budget Speech earlier this year, he indicated that government intended to spend South Africa s money like this: 53.18% 12.20% 10.65% 8.49% 5.81% 3.49% 1.82% 1.74% 1.27% 0.87% 0.31% 0.17% R682.3 bn on Social Services R156.5 bn on General Public Services R136.6 bn on Overall Economic Affairs R108.9 bn on Public Order and Safety R74.6 bn on Transport R44.8 bn on Defence R23.4 bn on Agriculture, Forestry, Fisheries, Rural Development and Land Reform R22.3 bn on General Economic and Commercial Affairs R16.3 bn on Science and Technology R11.1 bn on Fuel and Energy R4 bn on the Contingency Reserve R2.2 bn on Environmental Protection You have completed your e-filing! 100% complete! 10.

11 R Where is the Money for the Budget Derived From? 35.1% 27.8% 19.5% 17.6% Personal income tax VAT Company tax Other Do you need help filing your tax return? Call the SARS contact centre on SARS (7277) Use Help-You-eFile. This service allows you to ask a SARS agent to share your view of the efiling screen on your computer. This will enable an agent to help you with any problems you are experiencing in real-time. Visit your local SARS branch. Tax Dodgers Not everyone is as diligent and honest as you. In fact, some famous people have tried to avoid paying their taxes. Here are some well known individuals who got caught recently. Lionel Messi In 2013 the Barcelona and Argentina soccer star paid 10 million in back taxes to try and avoid being charged for tax evasion. He s still waiting on the outcome of a September 2013 court case which could see him sentenced to up to six years in prison. Wesley Snipes The American actor spent nearly three years in jail, only getting out in April 2013, for failing to submit income tax returns from 1999 to His tax advisors at the time were convicted as well and they both received longer sentences than Snipes. Julius Malema In August 2013 SARs revealed that Malema had undeclared tax liabilities of R16 million. It seized and sold many of his assets and is continuing its investigation of him. If you suspect someone of not paying their taxes you can report them via the SARS website or by calling their Anti-Corruption and Fraud Hotline on Unlike their counterparts at the IRS in the States, they won t give you a reward. 11.

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