Having spent a decade as a tax consultant I can tell you that for, most people, tax is quite simple. A bit of diligence and common sense goes a long way.
Below I’ve outlined the top 5 tax mistakes I see South Africans make. Some of these errors result in missing an opportunity to get money back. Others may land you in deep water.
1. Poor record keeping.
Sars expects every taxpayer to keep their supporting documents for 5 years after filing a tax return. Poor recording keeping can result in Sars disallowing your deductions even if the deduction is legitimate. Here are a few examples of documents you should hang on to:
- IRP5s
- Medical Aid Tax Certificates
- Vehicle Logbook
- Retirement Annuity Certificates
- S18A Donation Certificates (A receipt issued after a donation is made to an 18A-approved charity or organisation)
2. Not filing a tax return
Many people neglect to file their annual tax return (especially if they weren’t required to in the past) or they choose to avoid the process out of fear. Unfortunately, sticking your head in the sand won’t make the problem go away. When it comes to Sars this will just make the problem worse.
Filing one tax return a year is not that hard. Filing five years of tax returns is a nasty business and could result in a very large tax bill.
3. Not making use of a Tax-Free Savings Account
A Tax-Free Savings Account (TFSA) is an investment vehicle that has no tax implications. There’s no tax on the income the underlying investment generates, for example, interest or dividend income. There’s also no tax on any Capital Gains events in the TFSA.
Sars allows taxpayers to contribute R33,000 per annum to a TFSA.
Contributions to a Tax-Free Savings Account have no immediate tax benefit, but the income it generates attracts no tax.
4. Keeping some of your income “off the books”.
It is your responsibility to ensure that your disclosures to Sars are accurate. Non-disclosure of income, whether accidental or deliberate, can result in severe penalties ranging from 10%-150% on the total understatement. Keep in mind that if you use a tax practitioner, it’s your responsibility to give them accurate and complete information.
5. Not taking full advantage of a Retirement Annuity
Retirement annuity (RA) contributions are fully tax-deductible, up to 27.5% of taxable income or R350,000 per tax year. This makes an RA the most aggressive tax-saving vehicle in the short term for individuals.
The table below shows what a difference contributing to an RA can make.
| Without an RA | With a RA | ||
|---|---|---|---|
| Income | R500,000 | Income: | R500,000 |
| Less contribution | R0 | Less: RA contributions | R75,000 |
| Taxable income: | R500,000 | Taxable income: | R425,000 |
| Tax thereon: | R127,875 | Tax thereon: | R100,875 |
| Less tax rebate: | R14,067 | less: Tax rebate: | R14,067 |
| Tax payable | R113,808 | Tax payable: | R86,808 |
In the example above, the taxpayer with the RA contributions has invested R75,000 for his retirement, and saves R27,000 in taxes to Sars. You could say that Sars “gave” him R27,000 as a reward for investing in an RA.
Be aware that you will pay tax when you start making withdrawals from your savings. Learn more about tax and retirement annuities here.
Avoiding these tax mistakes will help reduce your tax liability and ultimately make you less fearful of Sars.
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By Andre Bothma
Andre is a passionate tax consultant, personal finance vlogger husband and father. When he’s not helping people wrap their heads around money matters, you’ll find him cooking doing Jiu-Jitsu or playing Dungeons and Dragons.
Follow him on Twitter: @Andre28071990
