Here is the second part of our easy-to-use guide to filling in your tax return, compiled with the help of the South African Revenue Service (SARS). Last week, in the first part of this guide, we dealt with the income sections of the tax return. This week, we consider the deductions that are allowable in terms of the Income Tax Act, and by which your gross income can be reduced.
You need to collect proof of expenses and your IRP5/IT3 certificates to complete these sections. Next week, in part three, we will explain how capital gains tax affects you and what you need to fill in on your return. Remember that in this article we refer to the IT12BU return. If you received an IT12S form, you will find that some irrelevant parts have been omitted.
To claim your medical expenses ... turn to part 4.1 and 4.2
Here you can claim contributions you paid to a medical scheme and some medical or dental expenses you paid for, that were not covered by your scheme. You can claim these expenses for yourself, your spouse and dependant children and step-children. The medical scheme must be an approved scheme in terms of the Medical Schemes Act and you can only claim your contributions - not the portion paid by your employer. You will find the total of your contributions on your IRP5 next to the code 4005.
If you paid medical expenses and have not been able to recover these from your medical scheme, you can claim these as unrecovered medical expenses. These medical expenses must, however, have been supplied by a registered medical practitioner; cover hospitalisation in a registered hospital or nursing clinic, home nursing by a registered nurse, or prescribed medicines from a registered pharmacist; or cover expenditure incurred as a result of a physical disability - for example, spectacles, earphones or diabetes.
Add the expenses you paid for and did not recover from your medical scheme to your medical scheme contributions and fill in the amount next to the code 4008 in part 4.1. Remember, you must have paid these bills.
While you must reflect the full amount of your contributions and unrecovered medical expenses on your return, the full amount will not necessarily be allowed as a deduction. SARS will calculate what is allowable.
If you are 65 or older, your claim will be considered in full.
However, if you are under the age of 65, only your medical expenses in excess of R1 000 or the first five percent of your annual taxable income - whichever is greater - will be allowed as a deduction, as illustrated in the following example:
Gross income: R85 000
Less pension contributions: R6 375
Less retirement annuity: R1 750
Taxable income (before the deduction of your medical claim):R76 875
x 5% equals: R3 843
Five percent of taxable income is greater than R1 000. So only medical expenses exceeding R3 843, will qualify as a deduction. For example, if your total claim amounted to R4 800, then R957 (R4 800 - R3 843) would be the allowable medical deduction.
Medically handicapped
If you, your spouse, dependant children or step-children are "handicapped", then you can claim the total medical expense incurred as a result of the "handicap". "Handicapped" refers to:
- A blind person;
- A deaf person;
- A person who permanently requires a calliper, wheelchair or crutch; or
- A person who suffers from a mental illness as defined in the Mental Health Act.
Your claim in this regard will be reduced by R500 if you are under the age of 65. Fill in the full amount in section 4.2 or next to the code 4009. The allowable amount will be calculated by SARS.
If you made donations ... turn to parts 4.3
A donation qualifies as a deduction only if it is made to certain public benefit organisations. You must attach a receipt from the institution. Normal school fees do not qualify as a donation.
Donations claimed should be listed and the original receipts attached to the last page of the return. The deduction will be limited to the greater of five percent of taxable income as calculated before allowing any deduction in respect of medical expenses and donations, or R1 000. The calculation will be done by SARS.
If you contributed to a pension fund ... turn to parts 4.4 and 4.5
The amount of contributions made to your pension fund should be reflected on your IRP5 next to the code 4001. Enter this amount in part 4.4. The allowable deduction will be limited to the greater of R1 750 or 7.5 percent of your retirement funding income. (Retirement funding income is that which is taken into account for the purpose of calculating your pension or provident fund contributions.)
You are allowed to make a deduction for arrear contributions made to an approved pension fund, but these must be substantiated by proof of payment and will be limited to R1 800 per tax year. SARS will carry any excess amount in arrear contributions forward to the succeeding year. Enter any arrear contributions in part 4.5.
If you contributed to a provident fund ... turn to part 4.8
Enter the amount reflected on your IRP5 next to the code 4003. Although provident fund contributions are not tax deductible, the income from which the contributions is deducted is considered to be retirement funding income.
If you contributed to a retirement annuity ... turn to parts 4.6 and 4.7
Did you contribute towards a retirement annuity fund? If so and the deductions were made monthly by your employer, the amount should be reflected on your IRP5 under the code 4006, and part 4.6 of your return should be completed accordingly. If, however, your contributions were not deducted from your salary, fill in the amount reflected on the certificate obtained from the applicable retirement fund and attach the certificate to your return.
SARS will limit the deduction to the greatest of:
- R1 750 per year; or
- R3 500 less any current pension fund contributions; or
- Fifteen percent of your taxable non-retirement funding income. Non-retirement funding income is all income not taken into account for the purpose of calculating your pension or provident fund contributions.
The total amount of contributions must be reflected in your income tax return, as the allowable deduction will be calculated by SARS. Any excess contributions will be carried forward to the succeeding year of assessment. SARS keeps record of all excess amounts and it will automatically be carried forward to the succeeding year.
Arrear retirement annuity contributions must be filled in in part 4.7 of the return. Although the actual amount must be reflected, your claim will be limited to R1 800 a year and the balance carried forward to the next year of assessment.
To claim expenses for entertainment ... turn to part 4.9
If you are received an entertainment allowance, you need to draw up a schedule of your actual expenses. The schedule should reflect the following information: your position, the nature of your duties, who you entertained, the nature of the entertainment, the cost thereof and whether your position entails regular and necessary entertainment expenditure. When you have completed the schedule, attach it to the last page of the return and fill in the amount of your claim in part 4.9.1 next to the code 4012. In calculating your tax liability, SARS will limit your claim to the lesser of:
- Five percent of your taxable income; or
- R2 500.
Your claim may not exceed your allowance.
If your earnings are derived wholly or in part from commission, you are entitled to deduct the amount of entertainment expenditure you actually incurred. Draw up a schedule of your expenses and attach it to your return. Claim the actual amount you spent in part 4.9.2.
In both cases, you do not need to submit documentary proof of the expenditure, but you must keep it in case SARS requires proof of actual expenses incurred.
To claim your travelling expenses ... turn to parts 4.10 and 13
If you received a travel allowance and you want to calculate your claim, turn to part 13 of your return. Fill in the details pertaining to your car in section 13.1.
Indicate the odometer reading of your car at the beginning and the end of the tax year in section 13.2. If your claim relates to part of the year, adjust the dates in section 13.2 accordingly. Ideally you should have kept a logbook which clearly differentiates between business and private kilometres travelled. This logbook must be submitted with your claim. If you do not submit a logbook, the first 14 000 kilometres you travelled will be considered by SARS to be for private purposes. Your business kilometres will be limited to 18 000, although your calculation should be based on the total amount actually travelled. Remember: travelling between your residence and place of employment is considered private and not business travel.
If you received a travel allowance, you may use section 13.3 or 13.4 to calculate your claim for your business kilometres travelled. Your claim will be limited to the amount of the travel allowance received.
If you want to claim travel expenses in the production of your income (that is commission income), you must use section 13.4 and claim your actual expenses. You must supply proof of your expenses and a copy of your lease or hire purchase agreement.
The amount of your claim calculated in parts 13.3 and/or 13.4 must be carried forward respectively to part 4.10.1 and/or 4.10.2 of the return.
If you had any other expenses ... turn to part 4.11
Any additional expenses necessarily incurred in the production of your income may be claimed and a detailed statement of such expenses must be attached to your form. SARS will consider whether such claims will be allowed. Remember you cannot claim any expenses here - only those related to the income you earned.
The amount claimed in respect of any other allowance received and not specifically catered for on the return must be filled in next to the code 4016 in part 4.11.
To claim any tax you have already paid ... turn to part 5
Fill in the amounts in respect of SITE and PAYE as reflected next to codes 4101 and 4102 on the IRP5, in part 5 of the return next to the applicable codes. These amounts represent credits that will be utilised in the calculation of your tax liability. When you fill in the amount, don't forget to include the cents as well, as this is the only place on the return where you are expected to do so.
In this part you can also fill in the amount of any foreign taxes you have paid. Tax paid on foreign income, other than dividends, must be filled in next to the code 4111. Tax paid on foreign dividends must be filled in next to the code 4112. Convert foreign currencies to rands using the actual exchange rate of the day. You can obtain this rate from the foreign currency division of your bank or from the SARS website www.sars.gov.za
If you paid a restraint of trade ... turn to part 9
As of February 23, 2000 all restraint of trade payments made to natural people or labour brokers who do not have a valid labour broker certificate, are considered taxable income.
If you are an employer and made any payment in respect of a restraint of trade, such a payment can, subject to certain provisions, be claimed as a deduction. Further details are available on the SARS website www.sars.gov.za
If you lived outside the country during the year ... turn to part 8
Part 8 deals with the residence basis of taxation and SARS needs to know whether you were a resident in order to determine whether you should be taxed on your worldwide income. If you are ordinarily resident in South Africa, you are most likely a resident. If you have been out of the country for substantial periods, then you may be classified as a non-resident. A definition of who is a resident is contained in the information brochure you should have received with your return, or on the SARS website www.sars.gov.za
See also Part 3: Capital gains tax