This is by far the most popular question we receive. We feel it is an issue that needs to be addressed.
It’s imperative that an understanding of the income tax system is reached. This is how the PAYE system works:
- As a relief to low income earners, there is a tax-free threshold that every taxpayer is entitled to. A limit to tax-free income. It increases a bit every year. It is for the 2013 year set at R63 556. Meaning that if your income for the year totals this amount or less, then you are not liable to pay tax. Only income above this will be taxed according to the tax tables, which can be found here.
- Your employer, by law is required to make an estimation of your income for the year, based on your monthly income, and should your monthly income multiplied by 12 exceed the threshold, he should deduct a calculated amount of tax for that month and pay it over to SARS monthly.
- The effect of the monthly payment to SARS is that when the end of the year comes around, you will owe SARS nothing, and they will owe you nothing.
But, not everyone is the same. One month you earn more, one month less. You might earn commission, a bonus, a travel allowance. Maybe you earn interest or receive dividends from investments, you switch employers or become unemployed. Thus the reason for the return submission to SARS.
It’s basically like a reconciliation to SARS. To put your cards on the table, and tell SARS that this is what I have earned for the year, these are my deductions, and this is the tax I have paid so far. So let us settle so that I owe you nothing and you owe me anything.
Here is an example: Joe graduates with an engineering degree degree November 2012. Joe begins working at a motor vehicle plant on the 03/01/2013. Joe earns a gross salary of R10000 per month.
This is how his payslip looks for the months of Jan 2013 and Feb 2013:
Gross salary: R10 000
Less UIF: R100
Less PAYE: R846.67
Net salary paid into Joe’s bank account: R9 053.33
The financial year end is 28/02/2013. Joe is now doing his personal tax. The above salary remittances were his only receipts for the period 01/03/2012-28/02/2013. Joe has no deductible expenses.
So a summary of Joe’s tax affairs is as follows:
Total earnings for the period 01/03/2012-28/02/2013: R20 000
Total PAYE paid: R1693.34.
The R20 000 he earned is below the R63 556 threshold for paying tax, and Joe will receive a refund from SARS of R1693.34.
This is a very elementary example, but this is in a nutshell, how this whole tax thing works. Practically there are a myriad of deductions that taxpayers might qualify for. Your tax practitioner would be able to advise you on these.
Contact us at firstname.lastname@example.org for assistance in filing your returns today.