When you get a new job, or a salary adjustment, it's worth taking a fresh
look at the way your salary is made up.
To continue with our example of last week: your R60 000 package includes an
amount of R2 500 your employer pays over to your medical, provident and
pension funds. If your package also includes annual subscription fees of
say R500 to the Association of Fashion Consultants I mentioned last week,
then you have to subtract this from that total package as well. Such
contributions are tax free. So what's left is the salary package - R57 000.
Allocate it this way:
Travelling allowance
Because currently only half of this allowance is taxed monthly, many
allocate high amounts and forget that the annual expense will be lower than
the total allowance. The tax that you did not pay on the other half of the
allowance from which you could not claim the deduction, will have to be
paid when you submit a tax return.
There is little point in allocating a travel allowance amount which
materially exceeds the total expenses you will incur. There is another tax
table that you use to determine the maximum permissible amount that you can
claim against this allowance depending on the car you use for your work.
Say you allocate R14 000 (R1 167 per month on your pay slip).
Entertainment allowance
All allowances, except travel and the subsistence allowances, are taxed as
basic salary. Only when you submit your tax return can you claim against
those allowances. In that case, you could receive a refund because your
allowance will be reduced by the claim you make and hence a smaller amount
(or even nothing) should have been taxed during the year. Say it's R2 500 -
because you cannot claim more in any event (R208 on your pay slip).
Cell-phone allowance
Currently there is no limit - include here what you expect to incur on
behalf of your employer. Say it's R2 000 (R167 per month).
Computer allowance
The deduction here is the cost of your computer but the full cost deducted
over three years (only if used for your employment), the interest you pay
over the period of the loan, repairs and insurance. Say annual costs come
to R4 500.
You will be left with R57 000 less R14 000 less R2 500 less R2 000 less R4
500 - R34 000. This R34 000 will automatically be the basic salary and the
only deductions allowed against basic salary are pension, retirement (not
provident fund) and medical aid contributions in this example.
Your IRP5 should show these allowances exactly as you have allocated above
- otherwise you will not get the deduction of your expenses. The table
below is used by the Revenue Service to determine how much tax you need to
pay.
Row Taxable Income Rates of Tax
1 0 - 35 000 18% of every R1
2 35 000 - 45 000 6 300 + 26% of amount over R35 000
3 45 001 - 60 000 8 900 + 32% of amount over R45 000
4 60 001 - 70 000 13 700 + 37% of amount over R60 000
5 70 001 - 200 000 17 400 + 40% of amount over R70 000
6 200 000 and over 69 400 + 42% of amount over R200 000
If your total taxable income is R140 000 for the year (say R34 000 above
because you would have claimed expenses from the allowances, investment
income, business all combined), your tax liability will be R17 400 plus 40
percent of the amount exceeding R70 001 - row 5. This is because the R140
000 is in the R70 001-R200 000 tax bracket on the table above. To determine
your monthly tax simply multiply your monthly salary by 12 (months), apply
the tax rates above and divide the tax you arrive at by 12 (months).