Filing a tax return is not just a chore, it’s an opportunity

As tax filing season gets into full swing, Stephan Hartzenberg, Product Architect at 10X Investments, reminds taxpayers of a few reasons why they should welcome the chance to square things with Sars.

Give them a finger, and they’ll take the whole hand, according to an old saying. We saw some of that recently when SARS announced that it had raised the tax-filing threshold to R500,000 (from R350,000). 

Some hopefuls read this as the tax threshold increasing to R500,000, so much so that Sars was forced to clarify the issue two days later.    

The tax threshold marks the income level at which tax becomes payable after allowing for individual rebates. All taxpayers qualify for a primary rebate. Secondary and tertiary rebates apply for taxpayers over the ages of 65 and 75 respectively. 

For the tax year to Feb 2019, the tax period related to the current filing season, the primary rebate was R14,067, meaning taxpayers did not have to pay the first R14,067 they accrued in tax so they owed the Receiver for tax only once their income exceeded R78,150 (18% standard tax rate x R78,150 = R14,067).

In the current tax year (to February 2020) the rebate is R14,220, meaning taxpayers start paying tax this year only when their income exceeds R79,000 (18% standard tax rate x R79,000 = R14,220).

If the tax threshold were increased to R500,000 for the 2020 tax year, Sars would lose R113,665 of revenue per taxpayer in that bracket. Government cannot afford such extravagant gestures at the best of times, let alone in the present climate. If it could, it would do so with loud fanfare, in the Budget speech, not by way of a mundane press release. Remember: if it sounds too good to be true, it probably is.

Strict requirements for tax-filing exemptions

The tax-filing threshold refers to the income level beyond which taxpayers are required to submit a tax return. But the R500,000 threshold is just one of four criteria that Sars applies in exempting taxpayers from this task.

In addition, they must have received income from one employer only for the full tax year, they must have received no other income (e.g. car allowance, business income, rental income, taxable interest, or income from another job, or from an annuity), and they are claiming no additional deductions, such as for medical costs, RA contributions, or travel expenses.

If the above criteria are all met, then you are not likely to owe Sars any money or be due a refund at year end, unless your payroll department has made a mistake.   

That does not mean you are not assessed. Anyone who has used eFiling will know that all the relevant data is already filled in, based on information provided by your employer. Sars is thus able to issue a simulated outcome and taxpayers can accept this outcome, or file an updated return. 

If your medical aid and retirement saving affairs are not tied to your employer, you must file a return. But you should then welcome this opportunity to claim your deductions and get a refund.    

Any which way, it is worth registering with Sars

You need a tax number, even if your prospective income will be less than R500,000 and you meet all the other criteria.

For one thing, providing your tax number is part and parcel of the payroll take-on process Your employer has a duty to deduct PAYE tax and Sars can’t allocate this without a corresponding tax number. 

But even if you won’t appear on any payroll because you are self-employed or work as an independent consultant, you should have a tax number and file returns. 

To get your number, visit your nearest Sars branch with your ID book/card and proof of residence. They register you while you wait, followed by an email confirmation of your tax number. This number stays with you for the rest of your life. 

I can promise you, flying below Sars’s radar as an independent contractor will come back to bite you at some point; operating without a tax number will seem expedient only until you realise that you can’t function properly in our financial system without one.    

For example, you need to provide a tax number to join a retirement annuity fund, to open a stock broking account or to invest in a unit trust. The retirement annuity provider needs your tax number to apply for a tax directive on any lump sum payouts. Even if you don’t take a lump sum, and purchase a living or guaranteed annuity instead, the annuity provider will require a tax number because they must deduct PAYE from any payments. 

Both your stockbroker and unit trust provider must deduct dividend withholding tax earned on share investments and pay this over to the Receiver.

If you plan to invest your money in a savings account only, your bank will forward a copy of the IT3(b) return (a confirmation of the interest you earned for the tax year) to Sars. This is linked to your ID number. If the amounts are material, and there is no corresponding tax number, Sars will follow up. 

Alternatively, you may be called upon to provide a Tax Clearance Certificate, for example as a shareholder in a private company, if you wish to take money offshore in excess of your R1m annual allowance, if you plan to go through the financial emigration process, or if you intend to apply for a property loan.      

Not even taking your money offshore will save you. In terms of the Organisation for Economic Co-operation and Development’s Automatic Exchange of Information agreement, you must now provide the tax number for your country of residence when you open a bank account somewhere else.   

Of the countries that are not party to this agreement, only the US is likely to appeal. But there, your account must be linked to a social security number.     

A complete tax record goes a long way

Applying for a tax number only when you need it is going to raise eyebrows. It will lead to queries and a more thorough investigation, and possibly sanctions and penalties. For sure, it will delay your application, invariably at a time of urgency. 

If your tax affairs are not up to date, or you owe the Receiver money, you will not receive the clearance certificate you need. And if you are in the process of claiming from a retirement fund, Sars will first deduct the amount owing to them. On the other hand, a long-standing filing record will give Sars confidence that you have not evaded taxes in the past.      

The tax-filing exemption is a plus for those who feel intimidated by the process, or who have nothing to add to what Sars already knows. Everyone else should see it not as a mission, but as an opportunity to claim refunds they are due, to keep their tax affairs tidy and up to date, and to remain in good standing with the Receiver. It brings peace of mind, avoids nasty surprises at a later stage and above all, leaves the Receiver’s door open to whatever the future may bring.

Record Keeping

“Anyone who submits a return should be aware that Sars requires you to keep records for a minimum period of five years (from date of submission to the end of the 5th tax period thereafter). 

Even if you are not required to submit a return because you meet the requirements for exemption, Sars can request an audit of any or all of your tax affairs for any preceding five-year tax period. 

Ensure you keep a record of your income(s), any claimed expenses, investment, retirement and medical aid tax certificates. Keep these records safe and in a format you can understand, write a short note explaining their relevance and retain this as well. 

And, remember, Sars’ auditors are people, too, receiving supporting documents in a legible, understandable format will stand you in good stead in the event they want to dig a little deeper into your tax affairs.

Stephan Hartzenberg
Product Architect

Stephan Hartzenberg, Product Architect at 10X Investments, develops and maintains 10X’s products. He holds an MCom from the University of Cape Town and is a CFA Charterholder.

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