Knowing your average rate of tax is important when retiring

Published Apr 29, 1998

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Many people assume that the marginal rate of tax they pay is the same as their average rate. In other words, if their marginal tax is 45 percent they assume they are paying 45 cents in tax on every rand they earn.

This is not the case. South Africa has what is called a progressive rate of income tax.

As you progress to the next level or marginal rate you only pay the higher rate from that

point.

In other words, using the current tax tables you will always be paying 19 cents in the

rand up to the first R31 000 you earn a year. For every rand you earn between R31 001 and

R46 000, you will pay 30 cents in the rand. At this level your marginal rate is 30 percent

but your average rate of taxation is far lower.

For tax purposes most of the time you do not need to know your average rate of tax,

unless you want to know what percentage of your income goes to build the country.

Your average rate, however, is important when you retire, as it is your average rate

that is used to work out tax on lump sum payments. You can work out your average rate by

using the accompanying 1998/99 tax tables and the following example:

STEP 0NE: CALCULATE NORMAL TAX DUE

Example Your calculation

Taxable income R70 000

Tax as per rate table for income bracket:

R15 850

Plus relevant % for amount over bracket

R4 300

(43% X R10 000)

Subtotal R20 150

Less primary rebate

R3 515

Tax due

R16 635

If you are 65 and older:

Less secondary rebate R2 660

Tax due R13 975

STEP TWO: AVERAGE TAX RATE CALCULATION

Tax due X 100 = Average rate

Divided by taxable income

The average rate of taxation table gives you further examples of average rates of

taxation.

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