Unit outcomes

By the end of this unit you will be able to:

• Understand the different tax categories.
• Use tax tables to answer questions.

What you should know

There is no prior knowledge required for this unit.

Introduction

Tax is a compulsory financial charge that government imposes on individuals, companies and other organisations for goods and services. Generally, the money received from taxation is used for government spending and public services.

The main forms of taxation are:

• Income tax
• Corporate tax
• Capital gains tax
• Value-added tax (VAT) and
• Property taxes.

The South African Revenue Service (SARS) is responsible for collecting taxes in South Africa.

Tax brackets

Most people, even those on social grants, pay taxes. Every time you buy an item, VAT, currently at a rate of [latex]\scriptsize 15\%[/latex], is added to the total cost.

Personal income tax is South Africa’s largest source of government revenue. Any person who receives an income within South Africa must be registered as a tax payer. Taxes are charged at different rates, depending on the income received by an individual or business.

Each year the Minister of Finance reviews and announces tax brackets and thresholds. Tax thresholds show the amount of income a person must receive to be liable to pay income tax.

SARS issues income tax return forms each year to those liable to pay tax. Tax returns must be completed and submitted through e-filing or manually at a SARS office to show income received. A tax return covers a financial tax year, which starts on 1 March and ends on the last day of February the next year.

Here is an example of the income tax brackets for individuals and Trusts for 2020/2021.

Income and deductions

Gross income is the money you earn before any deductions are made. To get to taxable income some deductions are allowed from gross income. These include pension or retirement contributions, donations and interest received.

Interest earned from investments or savings is treated as part of the taxpayer’s total taxable income, with the following exemptions:

• For persons younger than [latex]\scriptsize \displaystyle 65[/latex], [latex]\scriptsize \displaystyle \text{R}23\text{ }800[/latex] of interest earned per annum is exempt from taxation
• For persons [latex]\scriptsize \displaystyle 65[/latex] years or older, [latex]\scriptsize \displaystyle \text{R}34\text{ }500[/latex] of interest earned per annum is exempt from taxation.

Calculating tax payable

An individual taxpayer is entitled to deductions that are subtracted from the tax payable. These are called tax rebates.

For example, for the 2022 financial year the following tax rebates are applicable:

• Primary rebate: [latex]\scriptsize \displaystyle \text{R}15\text{ }714[/latex] for all natural persons under [latex]\scriptsize \displaystyle 65[/latex] years old.
• Secondary rebate: [latex]\scriptsize \displaystyle \text{R}8\text{ }613[/latex] if the taxpayer is over [latex]\scriptsize \displaystyle 65[/latex] years old.
• Tertiary rebate: [latex]\scriptsize \displaystyle \text{R}2\text{ }871[/latex] if the taxpayer is [latex]\scriptsize \displaystyle 75[/latex] years of age or over.

A medical tax credit is available for taxpayers who pay medical scheme contributions. This rebate has replaced the medical expense deduction from gross income that was previously used up until 2012. Be careful when you revise this section from textbooks and exams published before 2012, as they will still deduct medical expenses using the old system. Calculations are now based on a fixed rate, and take into account the number of dependants covered by the scheme fees.

For the tax year commencing on 1 March 2021, the monthly rebates for medical scheme contributions were as follows:

• [latex]\scriptsize \displaystyle \text{R}332[/latex] for taxpayer.
• [latex]\scriptsize \displaystyle \text{R}332[/latex] for first dependant.
• [latex]\scriptsize \displaystyle \text{R224}[/latex] for each additional dependant.

Example 2.1

Onias is [latex]\scriptsize \displaystyle 30[/latex] years old and earned a gross salary of [latex]\scriptsize \text{R}15\text{ }500[/latex] per month before tax. He also received a [latex]\scriptsize \displaystyle 13\text{th}[/latex] cheque as a bonus, which is equivalent to one month’s salary. He received [latex]\scriptsize \text{R}500[/latex] interest from his savings account. No pension contributions were made. Use the 2020/2021 tax tables to calculate the following:

1. His gross income.
2. His taxable income.
3. The tax rate he must pay according to the tax table.
4. The tax payable for the year.

Solutions

1. .
   [latex]\scriptsize \displaystyle \begin{align*}\text{Gross income}&=\text{yearly salary}+\text{bonus}+\text{interest}\\&=15\text{ }500\times 12+15\text{ }500+500\\&=\text{R}202\text{ }000\end{align*}[/latex]
2. .
   [latex]\scriptsize \displaystyle \begin{align*}\text{Taxable income}&=\text{Gross income}-\text{interest less than R23 800 }-\text{ pension contributions}\\&=\text{R}202\text{ }000-\text{R}500\\&=\text{R}201\text{ }500\end{align*}[/latex]
3. .
   

   Taxable income	Rate of tax
   [latex]\scriptsize 0-\text{R}205\text{ 900}[/latex]	[latex]\scriptsize \displaystyle 18\%\text{ of taxable income}[/latex]
   [latex]\scriptsize \text{R}205\text{ }901-\text{R}321\text{ }600[/latex]	[latex]\scriptsize \displaystyle \text{R}37\text{ }062+26\%\text{ of taxable income above R}205\text{ }900[/latex]
   [latex]\scriptsize \displaystyle \text{R}321\text{ }601-\text{R}445\text{ }100[/latex]	[latex]\scriptsize \displaystyle \text{R}67\text{ }144+31\%\text{ of taxable income above R}321\text{ }600[/latex]
   [latex]\scriptsize \displaystyle \text{R}445\text{ }101-\text{R}584\text{ }200[/latex]	[latex]\scriptsize \displaystyle \text{R}105\text{ }429+36\%\text{ of taxable income above R}445\text{ }100[/latex]
   [latex]\scriptsize \displaystyle \text{R}584\text{ }201-\text{R}744\text{ }800[/latex]	[latex]\scriptsize \displaystyle \text{R}155\text{ }505+39\%\text{ of taxable income above R}584\text{ }200[/latex]
   [latex]\scriptsize \displaystyle \text{R}744\text{ }801-\text{R}1\text{ }577\text{ }300[/latex]	[latex]\scriptsize \displaystyle \text{R}218\text{ }139+41\%\text{ of taxable income above R}744\text{ }800[/latex]
   [latex]\scriptsize \displaystyle \text{R}1\text{ }577\text{ }301\text{ and above}[/latex]	[latex]\scriptsize \displaystyle \text{R}559\text{ }464+45\%\text{ of taxable income above R}1\text{ }577\text{ }300[/latex]

   [latex]\scriptsize \begin{align*}\text{Tax}&=\displaystyle \frac{{18}}{{100}}\times \text{R}201\text{ 5}00\\&=\text{R}36\text{ 27}0\end{align*}[/latex]

4. .
   [latex]\scriptsize \begin{align*}\text{Tax payable}&=\text{tax rate}-\text{ primary rebate }\\&=\text{R}36\text{ 27}0-\text{R}15\text{ }714\\&=\text{R}36\text{ 27}0-\text{R}15\text{ }714\\&=\text{R20 556}\end{align*}[/latex]

Exercise 2.1

Use the 2020/2021 tax table and rebates below to answer the questions.

Taxable income	Rate of tax
[latex]\scriptsize 0-\text{R}205\text{ 900}[/latex]	[latex]\scriptsize \displaystyle 18\%\text{ of taxable income}[/latex]
[latex]\scriptsize \text{R}205\text{ }901-\text{R}321\text{ }600[/latex]	[latex]\scriptsize \displaystyle \text{R}37\text{ }062+26\%\text{ of taxable income above R}205\text{ }900[/latex]
[latex]\scriptsize \displaystyle \text{R}321\text{ }601-\text{R}445\text{ }100[/latex]	[latex]\scriptsize \displaystyle \text{R}67\text{ }144+31\%\text{ of taxable income above R}321\text{ }600[/latex]
[latex]\scriptsize \displaystyle \text{R}445\text{ }101-\text{R}584\text{ }200[/latex]	[latex]\scriptsize \displaystyle \text{R}105\text{ }429+36\%\text{ of taxable income above R}445\text{ }100[/latex]
[latex]\scriptsize \displaystyle \text{R}584\text{ }201-\text{R}744\text{ }800[/latex]	[latex]\scriptsize \displaystyle \text{R}155\text{ }505+39\%\text{ of taxable income above R}584\text{ }200[/latex]
[latex]\scriptsize \displaystyle \text{R}744\text{ }801-\text{R}1\text{ }577\text{ }300[/latex]	[latex]\scriptsize \displaystyle \text{R}218\text{ }139+41\%\text{ of taxable income above R}744\text{ }800[/latex]
[latex]\scriptsize \displaystyle \text{R}1\text{ }577\text{ }301\text{ and above}[/latex]	[latex]\scriptsize \displaystyle \text{R}559\text{ }464+45\%\text{ of taxable income above R}1\text{ }577\text{ }300[/latex]

• Primary rebate: [latex]\scriptsize \displaystyle \text{R}15\text{ }714[/latex].
• Secondary rebate: [latex]\scriptsize \displaystyle \text{R}8\text{ }613[/latex] if the taxpayer is over [latex]\scriptsize \displaystyle 65[/latex] years old.
• Tertiary rebate: [latex]\scriptsize \displaystyle \text{R}2\text{ }871[/latex] if the taxpayer is over [latex]\scriptsize \displaystyle 75[/latex] years old.

The tax credit granted per month for medical aid contributions is as follows:

• [latex]\scriptsize \displaystyle \text{R}332[/latex] for taxpayer.
• [latex]\scriptsize \displaystyle \text{R}332[/latex] for first dependant.
• [latex]\scriptsize \displaystyle \text{R224}[/latex] for each additional dependant.

1. Mr Davids is [latex]\scriptsize 48[/latex] years old and his gross salary is [latex]\scriptsize \text{R}35\text{ }000[/latex] per month. He received a yearly bonus of [latex]\scriptsize \text{R}20\text{ }000[/latex] and interest of [latex]\scriptsize \text{R}2\text{ }000[/latex] from his saving account. His medical aid contribution is [latex]\scriptsize \text{R}1\text{ }500[/latex] p.m. and he is the only member. Calculate:
   1. His gross income.
   2. His taxable income.
   3. His tax rate using the 2020/2021 tax table.
   4. The tax he must pay.
2. Andrea’s gross salary is [latex]\scriptsize \displaystyle \text{R}27\text{ 000}[/latex] p.m. and she was paid a half-yearly bonus of [latex]\scriptsize \displaystyle \text{R13 500}[/latex] and an end of the year bonus of [latex]\scriptsize \displaystyle \text{R13 500}[/latex]. She received [latex]\scriptsize \displaystyle \text{R10 000}[/latex] interest from her investment account. She pays [latex]\scriptsize \text{R2 }500[/latex] every month to a medical scheme for herself and her daughter. Calculate the tax she must pay for the year.

The full solutions are at the end of the unit.

Summary

In this unit you have learnt the following:

• How to calculate tax rates from tax tables.
• How to calculate tax payable.

Unit 2: Assessment

Suggested time to complete: 20 minutes

Use the 2021 tax table to answer the questions.

Sipho is [latex]\scriptsize \displaystyle 50[/latex] years old. His gross salary is [latex]\scriptsize \displaystyle \text{R}64\text{ }000[/latex] per month. He received a bonus of [latex]\scriptsize \displaystyle \text{R}35\text{ }000[/latex] for the year. His medical aid contribution is [latex]\scriptsize \displaystyle \text{R}3\text{ }000[/latex] per month for both himself and his wife.

The tax credit granted per month for medical aid contributions is as follows:

• [latex]\scriptsize \displaystyle \text{R332}[/latex] for taxpayer
• [latex]\scriptsize \displaystyle \text{R332}[/latex] for first dependant
• [latex]\scriptsize \displaystyle \text{R}224[/latex] for each additional dependant.

1. Calculate Sipho’s taxable income for the year.
2. Write down the tax bracket in which Sipho’s taxable income falls.
3. Calculate Sipho’s normal tax (before deducting rebates and credits).
4. Determine Sipho’s tax liability for the year.
5. If Sipho’s employer deducted [latex]\scriptsize \displaystyle \text{R}19\text{ }200[/latex] PAYE per month from his salary, calculate the amount he will either receive from SARS or the amount he will have to pay to SARS.

The full solutions are at the end of the unit.

Unit 2: Solutions

Exercise 2.1

1. .
   1. Gross income:
      [latex]\scriptsize \begin{align*}\text{Gross income }&= \text{Annual salary + bonus + }\text{interest}\\&=35\text{ }000\times 12+20\text{ }000+2\text{ }000\\&=\text{R}442\text{ }000\end{align*}[/latex]
   2. Taxable income:
      [latex]\scriptsize \begin{align*}\text{Taxable income }&= \text{Gross income }-\text{ interest less than R23 800}\\&=\text{R}442\text{ }000-\text{R}2\text{ }000\\&=\text{R}440\text{ }000\end{align*}[/latex]
   3. [latex]\scriptsize \displaystyle \text{R}67\text{ }144+31\%\text{ of taxable income above R}321\text{ }600[/latex]
      [latex]\scriptsize \begin{align*}&\text{R}440\text{ }000-\text{R321 6}00\\&=\text{R}118\text{ }400\\&0.31\times \text{R}118\text{ }400\\&=\text{R36 704}\end{align*}[/latex]
      Tax rate:
      [latex]\scriptsize \begin{align*}&\text{R67 1}44+\text{R36 704}\\&=\text{R103 848}\end{align*}[/latex]
   4. Tax payable:
      [latex]\scriptsize \begin{align*}\text{Tax payable }&= \text{Tax rate }-\text{ primary rebate }-\text{ medical tax credit}\\&=\text{R103 848}-\text{R}15\text{ }714-(\text{R}332\times 12)\\&=\text{R84 150}\end{align*}[/latex]
2. .
   Taxable income:
   [latex]\scriptsize \begin{align*}&\text{R}27\text{ }000\times 12+\text{R}27\text{ }000-\text{R10 }000\\&=\text{R3}41\text{ }000\end{align*}[/latex]
   Tax rate:
   [latex]\scriptsize \displaystyle \begin{align*}&\text{R}67\text{ }144+31\%\text{ of taxable income above R}321\text{ }600\\&=\text{R}67\text{ }144+0.31(19\text{ }400)\\&=\text{R73 }158\end{align*}[/latex]
   .
   The tax payable by Andrea is:
   [latex]\scriptsize \begin{align*}\text{Tax payable }&= \text{Tax rate }-\text{ primary rebate }-\text{ medical tax credit (taxpayer and 1st dependant)}\\ &=\text{R}\;73\;158-\text{R}\;15\;714-[(\text{R}\;332+\text{R}\;332)\times 12]\\ &=\text{R}\;73\;158-\text{R}\;15\;714-[\text{R}\;7\;968]\\ &=\text{R}\;49\;476\end{align*}[/latex]

Back to Exercise 2.1

Unit 2: Assessment

1. Taxable income for the year:
   [latex]\scriptsize \displaystyle \begin{align*}&\text{R}64\text{ }000\times 12+\text{R35 }000\\&=\text{R803 }000\end{align*}[/latex]
2. Tax bracket:
   [latex]\scriptsize \displaystyle \text{R}744\text{ }800-\text{R}1\text{ }577\text{ }300[/latex]
3. [latex]\scriptsize \displaystyle \text{R}218\text{ }139+41\%\text{ of taxable income above R}744\text{ }800[/latex]
   [latex]\scriptsize \displaystyle \begin{align*}&\text{R}218\text{ }139+0.41(\text{R58 }200)\\&=\text{R}218\text{ }139+\text{R}23\text{ }862\\&=\text{R}242\text{ 001}\end{align*}[/latex]
4. Tax liability:
   [latex]\scriptsize \displaystyle \begin{align*}\text{Tax liability }&= \text{Tax rate - primary rebate - medical tax credit}\\&= \text{R}242\text{ 001}-\text{R}15\text{ }714-(\text{R332+R332)}\times \text{12}\\&= \text{R}218\text{ 319}\end{align*}[/latex]
5. Total PAYE:
   [latex]\scriptsize \displaystyle \begin{align*}&\text{R}19\text{ }200\times 12\\&=\text{R230 4}00\end{align*}[/latex]
   He will not have to pay and will receive money backs from SARS:
   [latex]\scriptsize \displaystyle \begin{align*}&\text{R}218\text{ 319}-\text{R}230\text{ }400\\&=-\text{R 12 081}\end{align*}[/latex]

Back to Unit 2: Assessment