Who needs to be registered
Every single citizen in South Arfrica over the age of 18 should be registered for income tax. And should have a tax reference number, despite the type of income you receive. If you were unemployed or did not receive any income for a specific year, this will be indicated on your tax return.
How is tax calculated – Salary Earners
For salary earners, income tax is calculated on a monthly basis. The tax is named PAYE(Pay as you Earn) and is deducted from your salary monthly. Your employer has to supply you monthly with a payslip indicating your salary and the amount of PAYE deducted. Most employers use software specifically designed for this, to calculate tax and generate payslips. The software will use the income received for the year up to date, to calculate the tax that has to be deducted. So the tax is not only calculated on your current month’s salary, but the income from the current year’s March will be used. This is why the tax can differ greatly if you do not receive a set monthly salary. Tax is calculated according to the tax tables confirmed by government during the annual budget speech.
How is tax calculated – Other types of income
Everyone that receives another type of income, where PAYE(Tax) is not deducted monthly, will have to be registered for provisional tax. This simply means that you have to submit provisional tax forms twice a year. These forms are submitted in August and February. On this form you have to complete your estimated income for the current full financial year. The financial year runs from March to February. Tax is then calculated on the estimated income and paid over tot SARS.
How does SARS know how much I earned?
If you receive income from an employer, SARS will know how much you have earned for a specific financial year. SARS know this because of the IRP5 that is sent to them via your employer. The IRP5 is basically a document which contains your personal details, and a summary of your income for the year. The IRP5 also contains information about how much tax was deducted by your employer. IRP5’s has to be submitted before the end of May of every year. So you will usually receive a copy of your IRP5 between May and July. All employers have to give a copy of the IRP5 to the employee. This IRP5 must be kept safe by all taxpayers. And will be used to submit your income tax return. The IRP5 is linked to your tax account by SARS as soon as it is received.
How do I submit my tax?
There are two ways to submit your income tax return. The first way is to do it manually. This means that you have to visit a SARS branch. You will have to wait in the queue and a SARS consultant will complete your return on the system and submit it. You have to take your IRP5 and all your deductions, like medical aid, with you to the branch. Income tax returns can also be submitted via Efiling, the online system used by SARS. But before a Efiling profile can be registered, the taxpayer will first have to visit a SARS branch to update his or her personal contact detail. Once this is done, a profile can be created on Efiling. The first step is to click on register, and complete your contact details. After this is completed, the system will give you the option to print a decleration. This declaration must be signed, and sent to accompanied by the relevant documents. SARS will then send you a notification via Email and sms to confirm that your profile is ready to be used. All income tax returns can then be submitted via this electronic channel.
What happens after the return is submitted?
After the income tax return, SARS will send you an assessment, called the IT34. This document contains the summary of the detail submitted. It also contains the calculation, and will stipulate your calculated tax. Whether you have to pay anything in or receive a refund.
What if I don’t agree with the assessment?
If you do not agree with the assessment received from SARS, you can submit a dispute to SARS. Also if you feel that not all your deductions were taken into account. This dispute can also be submitted at a SARS branch or via the electronic channel. Along with the dispute, you also submit a suspension of payment. This simply means that if you have money due to SARS, you don’t have to pay it until the dispute is finalized. SARS will then process the dispute and notify the taxpayer if they need more details. Unfortunately this has become a very drawn out process over the last two years.
What happens if you do not submit a return?
If you do not submit an income tax return to SARS, they will start charging you admin penalties. These admin penalties are charged between R250 and R500 per month, for every return that has not been submitted. And can easily accumulate to thousands of rands.
What happens if your return is selected for audit?
An audit simply means that SARS wants to verify the details contained in the tax return submitted. The supporting documents for all income and deductions claims must be submitted. These supporting documents can also be submitted at the branch or via the electronic channel. SARS will then notify the taxpayer once it is finalized. They also issue a new assessment to indicate whether any additional tax has been charged.
What information must I keep?
All the information submitted to SARS has to be kept for a period of 5 years.