Tax legislation provides for an individual taxpayer to claim certain expenses incurred during a year of assessment against the income received. However, the type of expenses you can claim is dependent on the type of income you received.
According to tax law, a normal salaried individual can claim the following expenses as tax deductions:
Retirement fund contributions
Amounts contributed to pension, provident and retirement annuity funds during a year of tax are deductible by members of those funds.
Amounts contributed by employers and taxed as fringe benefits are treated as contributions by the individual employees. The deduction is limited to 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits). The deduction is further limited to the lower of R350 000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions exceeding the limitations are carried forward to the following year of assessment and are deemed to be contributed in that following year. The amounts carried forward are reduced by contributions set off against retirement fund lump sums and retirement annuities.
Medical and disability expenses
Individuals qualify for the following medical rebates and can claim the following medical tax expenditure:
- For the 2018/19 year of tax, monthly contributions to medical schemes (a tax rebate referred to as a medical scheme fees tax credit) up to R310 each for the individual who paid the contributions and the first dependant on the medical scheme and R209 for each additional dependant;
- Individuals who are 65 and older, or where an individual, his or her spouse, or his or her child is a person with a disability, can claim 33.3% of the sum of qualifying medical expenses paid and borne by the individual by which medical scheme contributions paid by the individual exceed 3 times the medical scheme fees tax credits for the tax year;
- Any other individual, can claim 25% of an amount equal to the sum of qualifying medical expenses paid and borne by the individual by which medical scheme contributions paid by the individual exceed 4 times the medical scheme fees tax credits for the tax year, limited to the amount which exceeds 7.5% of taxable income (excluding retirement fund lump sums and severance benefits).
Donations
Tax deductions in respect of donations to tax approved public benefit organisations are limited to 10% of taxable income (excluding retirement fund lump sums and severance benefits). The amount of donations exceeding 10% of the taxable income is treated as a donation to qualifying public benefit organisations in the following tax year.
Allowances
- Subsistence allowances and advances
Where the recipient is obliged to spend at least one night away from his or her usual place of residence on business and the accommodation to which that allowance or advance relates is in the Republic of South Africa and the allowance or advance is granted to pay for:
- meals and incidental costs, an amount of R416 per day (tax year 2018/19) is deemed to have been expended;
- incidental costs only, an amount of R128 (tax year 2018/19) for each day which falls within the period is deemed to have been expended.
Where the accommodation to which that allowance or advance relates is outside the Republic of South Africa, a specific amount per country is deemed to have been expended. So, a daily amount for travel outside the Republic of South Africa varies per country.
- Travel allowance
Employees’ tax is based on 80% of the travel allowance. Therefore, 80% of the travel allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage may be reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes. No fuel cost may be claimed for tax if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed for tax if the employee has not borne the full cost of maintaining the vehicle (e.g. if the vehicle is covered by a maintenance plan). The fixed cost per SARS’ tax table, must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full tax year. The actual distance travelled during a tax year and the distance travelled for business purposes, substantiated by a log book, are used to determine the costs which may be claimed against a travel allowance.
Actual costs – If a taxpayer is able to furnish an acceptable calculation based on accurate data, he/she can deduct the actual cost of his/her business travel for the year.
Fixed allowance (The simplified method) – Where the distance travelled in the vehicle for business purposes does not exceed 12 000 kilometres for the year of assessment, the employee has the option of deducting 361 cents (2018/19) per kilometre from his/her travel allowance if he/she so wishes. Thus, where an allowance or advance is based on the actual distance travelled by the employee for business purposes, no tax is payable on an allowance paid by an employer to an employee up to the rate of 361 cents per kilometre, regardless of the value of the vehicle. However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.
In conclusion
An individual who carries on a business as a sole proprietor is eligible for all the deductions and allowances provided for in the Income Tax Act in respect of his/her business expenses, as well as the deductions claimable by individuals earning only employment or investment income.