Good news! Although it's that time of the year again, the tax returns have been shortened and simplified. To make the task of completing the return even easier, Personal Finance and SARS have once again compiled an easy-to-use, do-it-yourself guide for individual taxpayers.
In our example we are using an IT12BU return to accommodate business0and farming income. Should you have received an IT12S return, you will find that some sections have been omitted on the return you received, as it is not required if you are not in receipt of business and/or farming income. You will also find some new sections in the form that take care of income that has now become taxable - that which you earn from other parts of the world and that from capital gains.
In this, the first of three parts, we show you how to fill in the sections dealing with income. The second part will help you fill in the sections that deal with claiming deductions and in part three we will lead you through the new Capital Gains Tax sections of the form.
Who needs to submit a return?
If you didn't receive a tax return it does not necessarily mean you don't need to submit one. It is up to you to establish whether or not you should submit a return and if necessary to register with your local SARS office.
You need to complete a return if:
- You earned remuneration of more than R60 000 for the year after the deduction of pension and retirement annuity contributions;
- Your earned remuneration of less than R60 000 for the year but your employer paid you a travel allowance; or
- You earned commission; or
- You earned more than R2 000 in income from a source other than remuneration (that is other than a salary). This includes taxable income on investments (above R4 000, or R5 000 for those aged 65 or over), and income from a business, farming or rent. If you did earn more than R2 000 of this kind of income, you should also have registered as a provisional taxpayer or you could be liable for penalties and interest on underpaid taxes. Note:
If however, you received an income return it must be submitted even if the above does not apply. Indicate the periods for which you were unemployed in part 3.2.if applicable.
When is your return due?
Your income tax return must be submitted to SARS by Tuesday, June 4, unless you haven't received your applicable documentation. In this case, you have until August 19 to submit your form. If you are unable to complete your return by these dates, contact your local SARS office or visit the SARS website at www.sars.gov.za to apply for an extension in order to avoid penalties and a possible conviction.
Where to begin
Start by collecting all the documents you are likely to need pertaining to the tax year March 1, 2001 to February 28, 2002: the IRP5/IT3a certificate supplied by your employer; details of interest income you earned (usually sent out by the companies who hold your investments); annuities (regular payments, similar to pensions); any income you received for renting out any property you own (as well as details of any loans over that property and any payments you made for repairs, rates and insurance of that property); and income advices for any other payments received. Gains made on the disposal of capital assets will be dealt with in part three of this series.
The IRP5/IT3a certificate is your employer's notification of what you have earned and of amounts deducted from your remuneration and pension.
Next week, when we deal with deductions, you'll need other documents, including medical scheme statements, receipts of doctors' and other medical bills paid, that you intend to claim and your car logbook, if you kept one.
Personal details ... part 1
If you have filled in a return previously, you will find your personal particulars printed on page 1. Check that these details are all correct and fill in the white areas only if your particulars have changed or have not been printed in the shaded areas.
Take care to ensure your banking details are correct, so that any refund due to you can be paid directly into your account.
Don't forget to sign the return at the bottom of page 1. If you send SARS an unsigned return, it will be sent back to you and you run the risk of being penalised for late submission. Before you send it off, make copies of your return for your own records.
Income from Employment
If you receive a salary, commission or a pension ... turn to parts 3.1 and 3.2
Here you are expected to provide SARS with details of what you've earned during the year of assessment. The information you'll need is mostly on the IRP5 certificate you should have received from your employer.
In part 3.1 fill in your main source of income (for example, salary, commission or pension). You do not need to insert the code as it refers to the sector of the economy you work in, such as agriculture, construction, the public service, or whatever and will be inserted by SARS.
In part 3.2 refer to your IRP5 for a breakdown of the income you earned. If you are a salary earner, for example, your IRP5 should state how much of what you earned was salary, how much an annual payment, how much a travel allowance, and so on. Write down each of these together with the name of your employer (or pension fund if you are retired) and the period during which you earned this income. This time you do need to fill in the code which you should find on your IRP5. Examples of these codes are:
Salary3601
Bonus (annual payment)3605
Commission3606
Monthly pension3603
In the column headed "RF Ind", you need to indicate with a "Y" or an "N" whether or not the income you received was "retirement funding". Retirement funding income means the amount of your income that is used for the purpose of determining your pension fund contributions and those of your employer. This income can include salary, allowances, commission and fringe benefits, depending on the rules of your pension fund. These codes will be indicated on your IRP5 next to the applicable income description and code.
It is important to fill this in because it determines the amount that will be allowed by SARS as a deduction in respect of retirement annuity contributions.
On previous returns, there was a separate section for allowances and taxable fringe benefits. These must now be filled in at section 3.2. Even if you receive a number of allowances, you should have sufficient space, but you may have a problem if you have worked for more than one employer during the past tax year. You must then add items with the same source code together and list these as one item, and write up all your income and allowances under the same headings on a separate sheet of paper and attach it to your return.
Income from Investments
If you earned income from investments locally or abroad ... turn to part 3.3
With income you have received from investments, the tax return distinguishes between:
- Interest income from local investments;
- Interest income from foreign investments; and
- Foreign dividends.
Use the income advices sent to you by the institution that holds your investments. Total up all the interest you have earned from your investments for the year of assessment, including that from savings accounts, fixed deposits and the interest content of unit trust payouts.
You don't have to include dividends paid from South African shares as these are still tax free, but dividends paid on foreign shares are taxable. You must also declare these in section 6.3 and state whether you want to be taxed on the net dividends - that is what you were paid after tax was deducted in the country in which you earned the dividends. If you opt to be taxed on the gross amount, you can claim the tax paid in a foreign country as a deduction in part 5. SARS will calculate the allowable deduction in respect of foreign taxes paid.
Although you are exempt from tax on the first R4 000 of investment income you earn if you are younger than 65, and the first R5 000 if you are 65 years or older, you must fill in the full amount of the investment income earned. SARS will programmatically apply the exemption.
If you are married in community of property, you need only reflect half of the amount of investment income you earned. Your spouse will be taxed on the rest. If you are not married or are married out of community of property, you must fill in the full amount of investment income you earned.
Interest income from foreign investments and foreign dividends must be declared in rands. If your foreign investment was made through a local investment house, your income advice from them will most probably show your interest income in rands. If not, you must use the exchange rate on the date that the interest was paid to you. The exchange rates can be obtained from your bank or you can visit the SARS website at www.sars.gov.za
Income from Other Sources
If you earned foreign income, rent, an annuity, royalties or other fees ... turn to part 3.4
Foreign income, other than interest on foreign investments, foreign capital gains or foreign dividends, must be declared in section 3.4.1 after completing the foreign income schedule in part 6.4. This is a new requirement as this is the first year in which all South African residents will be taxed on income earned anywhere in the world. You will need to fill in this section if, for example, you were employed outside South Africa or you earned money from a business you operated in a foreign country. If you paid tax on the foreign incomes earned claim the amount in section 5 and provide documentary evidence to allow SARS to calculate the credit due - more about this next week.
In section 3.4.2 you have to declare any capital gain or loss. In part three of this series we will explain how to complete this section.
If you received rent from letting a property, you need to calculate the total profit or loss you made by deducting expenses from the income you received. If you have a bond on the property you let, you can include the interest you paid on that loan as an expense. Look this up on your home loan statements from your bank. The profit or loss you made must be entered in section 3.4.3. Again, if you are married in community of property, you may divide the result in half. If you have let only a portion of your property, the expenses claimed must be in the same proportion. So if it cost you R10 000 to paint your house and you are renting out half of it, you can only deduct R5 000 against the rental income. Occupational rent you receive pending the transfer of a property you have sold is also taxable.Taxpayers completing the IT12S return can calculate their profit/loss from rental income on a separate schedule and attach it to the return.
If you received a monthly income from a retirement annuity, you need to fill in section 3.4.4. If you received an income from any other annuity you purchased, fill in section 3.4.5.
A CERTIFICATE FROM THE INSURANCE COMPANY MUST BE ATTACHED TO THE LAST PAGE OF THE RETURN.
Only the taxable portion of a purchased annuity needs to be reflected under the code 3611. You should be able to establish what this amount is from your IRP5 or IT3 certificate. If not, consult the original contract you received from your Assurance Company or contact the institution for the details.
If you were paid royalties, you need to fill in section 3.4.6.
In section 3.4.7 you need to fill in any other income you earned that has not been declared in any of the sections above. For example, if you earned executor's or curator's fees or if you were paid a spotter's fee by an estate agent.
If you resigned or retired ... turn to Part 3.5
If you resigned or retired during the tax year and received lump sum benefits, choose the appropriate option to enter your lump sum benefits depending on whether you;
Resigned from a pension fund;
Resigned from a provident fund;
Retired from a pension or retirement annuity fund; or
Retired from a provident fund.
You need only enter the name of the fund and the total amount received as shown on the IRP5 supplied by the applicable fund. SARS will determine the taxable amount.
If you received leave pay, other gratuities or special remuneration ... turn to part 3.6 and 3.7
In section 3.6 you must enter any leave pay or other gratuities, including retrenchment pay. Fill in the full amount - SARS will calculate the taxable amount. Such amounts will be indicated on the IRP5 received from your employer under the source code 3901. Although you may think you have already been taxed on this amount, that tax will have been calculated based on information sent to SARS by your fund or employer, and it is possible you paid too little or too much. SARS will on assessment calculate the correct amount of tax due, taking into account the amount of tax already deducted.
Part 3.7 only applies to a few people who work in proto teams in the mining industry.
If you run a business or practice a trade or profession ... turn to part 3.8
If you are in receipt of this type of income, you need to complete an IT12BU return.
The income earned from a business or by practising a trade or profession while not in full-time employment must be declared in part 3.8. Attach your financial statements to the last page of the return.
If you farm for a living ... turn to part 3.9 and 3.10
Farmers looking at the return may be forgiven for thinking they have much less to fill in this year. This is not the case. The same schedule you filled in before must be completed again. However, this year you will find it in the information brochure. Remove it from the brochure and attach it to your return. And if you are farming beyond South Africa's borders, SARS would like to know what you have earned there, because, with the introduction of residence-based taxation, you are liable for tax on this income as well. Again, you will find a schedule in the information brochure.
If you earned a foreign pension ... turn to part 6
When the government announced that it was going to tax South African residents on income earned anywhere in the world, it gave pensioners who are receiving a pension from another country a breather, saying foreign pensions would not be taxable for at least three years, but that the government was looking into the situation of these pensioners. The inclusion in part 6 of the return of a question relating to foreign pensions, is no reason for pensioners to think the government has reneged on its promise. The question is there simply for SARS to determine how many taxpayers are receiving a foreign pension. If you are one of them, fill in the amount you received after tax and convert it into rands using the actual exchange rate of the day you were paid. The exchange rate can be obtained from your bank or visit the SARS website www.sars.gov.za