DEDUCTIONS
Now that you have declared all the income you earned, it's time to consider the deductions that are allowable in terms of the Income Tax Act. Deductions reduce your gross income and hence the tax you will pay. Deductions include your medical expenses, contributions to retirement funds, travelling expenses and other costs which are directly related to how you earn an income. You also need to be credited with the tax you have already paid to SARS during the year.
To claim tax you have already paid turn to section 4
In section 4
of the return next to the applicable codes, fill in the amounts of tax you have paid (both SITE and PAYE) during the tax year. These amounts are reflected next to the codes 4101
and 4102
on your IRP5. When SARS calculates what tax you owe, you will be credited for these amounts you have already paid. Don't forget to include the cents when you fill in these amounts, as this is the only place on the return where you are expected to do so.
You can also fill in the amount of any foreign taxes you have paid. Tax paid on foreign income, other than that paid on foreign dividends and interest earned, must be filled in next to the code 4111.
Tax paid on foreign dividends must be filled in next to the code 4112
and tax paid on foreign interest should be listed next to the code 4113.
Convert foreign currencies to rands using the actual exchange rate on the day you paid the tax. You can obtain this rate from your bank or from the SARS website, www.sars.gov.za
You must also attach proof of the tax you have paid on foreign income, interest income and dividends to page 7
of the return.
To claim your medical expenses turn to section 5.1
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 dependent 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 (even if it is a salary sacrifice arrangement - you can only claim contributions paid from after-tax money).
If your employer deducts your medical scheme contributions from your salary, you will find the total of your contributions on your IRP5 next to the code 4005.
Fill in this amount in section 5.1.1.
If you pay your own medical scheme contributions, ask your scheme for proof of the contributions you have paid, fill in the total and submit the proof with your return.
If you do not belong to a scheme or you paid medical expenses that you could not recover from your medical scheme, you can claim these unrecovered medical expenses.
In previous years these expenses were added to your medical scheme contributions. However, now you need to list them separately and to distinguish between those that you submitted to your scheme but that the scheme did not cover (section 5.1.2)
and those that were not submitted to a medical scheme (section 5.1.3).
You must submit proof of those expenses you submitted to your scheme but which were not covered. You also need proof of the expenses that were not submitted to your scheme, but you do not need to supply SARS with this proof, unless you are later asked to substantiate your claim.
The expenses you have not submitted to your scheme must be listed separately, together with reasons why you have not submitted them to your scheme, and the list attached to your return.
The unrecovered medical expenses you claim for must be those for:
- A service supplied by a registered medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor or orthoptist;
- Hospitalisation in a registered hospital or nursing clinic; or home nursing by a registered nurse;
- Prescribed medicines from a registered pharmacist or physician; or
- Medical expenses you incurred outside the country.
If you, your spouse, dependent children or step-children have a physical disability - for example, if you wear glasses or suffer from diabetes - you can claim expenses incurred and not recovered from your medical scheme in respect of this disability.
State the nature of the disability and fill in the total amount in section 5.1.4.
A list of the expenses and the reason why these were not recovered from your medical scheme must be attached.
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 five percent of your annual taxable income will be allowed as a deduction, as illustrated in the following example:
Gross income: R141 550
Less pension contributions: - R7 650
Less retirement annuity: - R1 750
Taxable income (before deduction of your medical claim): R132 150 x five percent = R6 607.50
Only medical expenses exceeding R6 607.50 will qualify as a deduction. For example, if your total claim amounted to R11 071, then R4 463.50 (R11 071 - R6 607.50) would be the allowable medical deduction. Remember, however, to claim the full amount - SARS will calculate the allowable deduction.
Finally, total up all your medical expenses that you filled in in parts 5.1.1 through to 5.1.4
and write the total next to the words Total Expenses and the code 4008.
Medically handicapped
If you, your spouse, dependent children or step-children are handicapped, then you can claim the total medical expense you have incurred as a result of the handicap. Handicapped refers to:
- A blind person;
- A deaf person;
- A person who permanently requires a calliper, wheelchair, crutch or artificial limb; or
- A person who suffers from a mental illness as defined in the Mental Health Act.
You must state the nature of the handicap in section 5.1.5
and fill in the total amount of the expenses you incurred and did not recover in section 5.1.6.
Again, a list of the expenses and the reasons why they were not recovered from your medical scheme must be attached.
If you are under the age of 65, your claim for expenses relating to you or your dependants being handicapped will be reduced by R500. If you are 65 or older, your claim will be considered in full. However, you must fill in the full amount of your expenses on your return - SARS will calculate the allowable amount.
Finally, total up all your medical expenses that you filled in in parts 5.1.1 through to 5.1.6
and write the total next to the words Total Expenses and the code 4009.
If you have made donations turn to section 5.2
Any donations you make only qualify as deductions against your taxable income if they are made to certain approved public benefit organisations. Ask the organisation to which you are planning to make the donation if it is able to give you a tax certificate which you can use to claim a deduction. Normal school fees do not qualify as a donation.
If you are claiming donations, fill in the total amount in section 5.2
next to the code 4011
and attach the original receipts to page 7
of your return. Fill in the total amount of the donations you made, and SARS will calculate the allowable amount. The allowable amount will be limited to the greater of five percent of your taxable income as calculated before any deduction in respect of medical expenses and donations, or R1 000.
If you contributed to a pension fund turn to section 5.3 and 5.4
The total amount of the contributions you made to your pension fund should be reflected on your IRP5 next to the code 4001.
Enter this amount, together with the name of the fund in section 5.3.
If you were a member of more than one fund during the tax year, add up the amounts and fill in the total next to the code 4001.
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 - your IRP5 should indicate clearly which income is retirement-funding.)
You are allowed to make a deduction for arrear contributions to an approved pension fund, but these must be substantiated by proof of payment and will be limited to R1 800 a tax year. SARS will carry any excess amount in arrear contributions forward to the succeeding year. Enter any arrear contributions in part 5.4.
If you contributed to a retirement annuity turn to sections 5.5 and 5.6
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 section 5.5
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. Note, however, that you can only claim for contributions made for yourself and not for contributions paid on behalf of your spouse or children.
SARS will limit the deduction to the greatest of:
- R1 750 a 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.
This calculation will, however, be done by SARS - you just need to fill the total amount of contributions on your return. Any excess contributions will be carried forward to the succeeding year of assessment. SARS keeps record of all excess amounts and will automatically carry this forward to the succeeding year.
Arrear retirement annuity contributions must be filled in in section 5.6
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.
If you contributed to a provident fund turn to section 5.7
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 are deducted is considered to be retirement-funding income.
To claim your travelling expenses turn to section 5.8 and page 5
If you received a travelling allowance and want to claim travelling expenses incurred for using your vehicle for work purposes against the allowance, or you incurred travel expenses related to your vehicle in the production of your income, turn to page 5
of your return. Fill in the details pertaining to your vehicle in section 1.
Indicate the odometer reading of your vehicle at the beginning and the end of the tax year in section 2 (i) and (ii).
Remember that you must complete this section with the actual odometer readings, otherwise SARS will not consider your travel expenses claim. If your claim relates to part of the year, adjust the dates 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 and in section 2
you must fill in the number of kilometres travelled for business purposes and the number for private purposes.
If you do not submit a logbook, the first 14 000 kilometres you travelled will be considered by SARS to be for private purposes and no more than 18 000 kilometres for business purposes. Your business kilometres must be calculated by subtracting 14 000 kilometres for private travel from the total amount travelled. However, if you have travelled a total of more than 32 000 kilometres (14 000 + 18 000), your mileage for business purposes will be limited to 18 000 kilometres.
Remember: travelling between your residence and place of employment is considered private and not business travel.
If you received a travelling allowance and depending on whether or not you have kept records of the expenses incurred in respect of your vehicle, you may use section 3 or 4 to calculate your claim for your business kilometres travelled. If you have no records, fill in section 3
according to the fixed costs determined for your vehicle relative to its value. You will find these fixed costs in the brochure that you received with your tax return.
If you did keep records, fill in the amounts you spent on fuel and oil, repairs and maintenance, insurance and licences, and so on in section 4. You can also claim for wear and tear on your vehicle at a rate of 20 percent a year.
If you received a travelling allowance, the amount of your claim calculated in sections 3 and/or 4
must be carried forward to part 5.8.1
of the return.
Remember that if your claim is more than the travelling allowance, your deduction will be limited to the amount of the travelling allowance.
If you want to claim travel expenses incurred in the production of your income, you must use section 4 of page 5
and claim your actual expenses. Then carry the amount over to section 5.8.2.
If you received a subsistence allowance turn to section 5
Your employer may pay you a subsistence allowance if you are obliged to travel for business and spend a night away from home. This is an amount over and above your normal remuneration to cover you for what you spend on meals and other incidentals, such as tips and telephone calls, while you are travelling. The allowances paid by your employer will be reflected on your IRP5 under the codes 3704 or 3705
.
If you received an allowance coded as 3704,
it is taxable. You may therefore claim your actual expenses or an amount deemed to have been spent. You need to draw up a detailed schedule, with the destinations, departure and return dates, number of days away in respect of each business trip. Your schedule must also include either the amounts and details of the actual expenses you incurred or the deemed expenses claimed. All the information on this schedule must be submitted together with your return. The total amount claimed in this schedule should be filled in under section 5.9.1.
The amount deemed to have been spent during local business trips on meals and incidentals is R196 a day. If your employer pays for your meals during your business trips, the deemed amount for incidentals is R60 a day. If you travelled abroad, the amount deemed to have been spent on meals and incidentals is US$190 a day.
If you received an allowance coded 3705
and it did not exceed the amounts deemed to have been spent on either meals and incidentals or on incidentals only, you will not be taxed on the allowance and you can also not claim your expenses against the allowance.
If you had any other expenses turn to section 5.10
Any additional expenses you incurred in the production of your income may be claimed, but a detailed statement of such expenses must be attached to your form. SARS will consider whether such claims will be allowed. SARS will no longer allow expenses relating to things such as the use of a computer or cellphone for work purposes, subscriptions to certain publications and membership of clubs. You can, however, claim expenses related to wear and tear on a computer or cellphone if it is used for business purposes.
You can only claim for entertainment expenses incurred if you earn more than 50 percent of your income from commission. You can also claim for:
- Premiums paid to an income protection policy;
- The fees you pay your accountant or tax consultant, as these relate to your taxable income, but not if you are only an employee;
- Interest you have incurred on money you have borrowed to earn your taxable income;
- Home office expenses if you use part of your home regularly and exclusively as an office from which you earn your taxable income. You cannot claim for an office that doubles as a guest room.
You need to work out the proportion of the total area of your home that your office constitutes and then you can claim the same proportion of your home loan interest rates, rates and taxes, electricity, insurance, security costs and domestic employee's wages. You should bear in mind, however, that if you claim home office expenses as a deduction against your taxable income, that portion of your home is not regarded as your primary residence and is not exempt from capital gains tax when you sell the house.
If you lived outside the country during the year turn to section 6
In section 6
you need to state whether you are a resident as defined by the Income Tax Act. This is because South Africa now has a 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 a resident for tax purposes. If you have been out of the country for substantial periods, 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
If you are a director of a company or a member of a close corporation turn to section 7
SARS needs to know if you are a director of a company or a member of a close corporation, because then you are expected to submit a statement of assets and liabilities with your return. SARS is likely to send you an IT12SB
form in future.
If you followed this guide and filled in your own return ignore section 8
If not, and you paid someone to fill in your return for you, that person must complete and sign section 8.
FINAL CHECKLIST
Before you send off your completed return, make sure you've done the following:
- Filled in all the relevant sections.
- Signed your return and made a copy for your records.
- Attached your IRP5 certificate and other required documentation.
- Enclosed your return and all documentation in the free post envelope supplied. Filled in the address of your SARS branch office (printed on the top left corner of your return).
- Mailed it or delivered it to your local branch office in time to meet the July 9, 2004 deadline.
- This guide was compiled with the help of the South African Revenue Service