Common Pitfalls

Where an employer makes contributions to a Medical Aid on behalf of an employee, and the employee’s number of dependents change, individuals are encouraged to keep their employers in the loop as this has a direct effect on the PAYE deducted on a monthly basis.

According to the Tax Act 58 of 1962, hereafter referred to as the Act, taxpayers may only deduct bona fide donations in cash made to a registered charity organisation also referred to as a section 18A approved organisation. Taxpayers will receive a section 18A receipt issued by the organisation which should be submitted to SARS as supporting documents upon the filing of their income tax return.

Taxpayer’s will however notice, when completing the return, that a reference number is required when claiming a deduction under section 18A, and where their donation certificate does not list this amount, it should be requested before being able to proceed.

Taxpayers who rent out a property should accurately track expenses incurred in the production of their rental income as these expenses are tax deductible and will ultimately decrease their tax due. SARS however requires proof of these expenses and taxpayers are therefore reminded to keep the relevant supporting tax invoices or receipts.

Typical claimable expenses are water and electricity, interest on bond and other finance charges whereas bond payments and improvement costs are not tax deductible.

As contributions to a Retirement Annuity may be deducted from a taxpayer’s taxable income, a tax certificate should be obtained from the relevant financial institution and not the benefit statement related to the fund.

A minor child is liable for tax on income earned or received by him/her and should accordingly submit income tax returns to SARS on an annual basis. Such income would for example be salary or investment income. The minor child’s legal guardian is responsible for the registration and tax submission on behalf of the child.

It is important to note that all investment income received by a minor child must be declared.

As South Africa applies a residency based system of taxation, world -wide receipts derived by residents are defined as gross income. Residents are accordingly taxed on a residence-based system of tax.

Should a South African resident earn income from abroad, this income should be declared to SARS by way of your income tax return and he/she might be liable for tax on such income, depending on certain circumstances.