Unit 2.3 - Tax Rates, Rebates and Thresholds (15) Flashcards
Tax rates are amended on a
Annual basis with effect from 1 March each year, by the Minister of Finance, in the budget speech.
Tax for a legal person is a
Proportional tax computed as a fixed percentage of taxable income, irrespective of the level of taxable income.
Rate of tax = 27% for years of assessment ending on or after Mar 2023
The company (not owners) pay the tax
There are certain specifications in the rates that apply to mining, gas, oil, insurance, employment, Small Business Corporations, Public Benefit Organisations and recreational clubs. The taxation of trusts is a fixed rate of 45% since the 2018 tax year of taxable income except special trusts which are fixed on the same sliding scale as individuals.
For an individual that is carrying on a business that is a sole proprietorship or partnership must
Add the taxable income from trading activities of business to their taxable income from other sources to determine total taxable income for the tax year of assessment.
Owner pays the tax as personal tax according to individual tax table rates
The tax table is used to calculate
An individual’s annual tax liability. As the income increases so the rate of tax increases at an increasing rate.
The tax rate of an additional Rand of taxable income within a particular tax bracket is known as
The marginal tax rate
Ie. It is the tax rate applied to an additional R1 of taxable income.
An individual’s tax bracket determines their marginal tax rate
The system of employees tax allows
Employers to deduct tax on a weekly or monthly basis to pay over to SARS.
SARS has created special tax tables known as deduction tables.
Deduction tables combine the calculation of the tax liability and the subsequent subtraction of rebates.
Tax rebates ensure
That individuals with a taxable income below a certain level do not pay tax.
Thus the next step is to deduct the rebates allowed by SARS.
These rebates are basic amounts by which the tax liability of the individual is reduced.
Rebates apply only to individuals, not to legal persons.
There are three different allowable rebates
- Primary rebate – is allowed to all natural persons of any age
- Secondary rebate – is allowed to natural persons that are 65 years or older (entitled to primary & secondary)
*Tertiary rebate – is allowed to natural persons that are 75 years and older (entitled to all three rebates)
After deducting the applicable rebates the amount calculated reflects
The net normal tax payable for the year of assessment.
The actual tax rate is known as the average (effective) tax rate (Tax payable / Taxable income x 100)
Rebates are limited to the tax liability, ie. No tax refunds can be created by using the rebate
The full rebate will apply in each year of assessment except in the following circumstances:
- Where a person is born during the year of assessment (if liable for tax)
- Where a person dies during year of assessment
- Where a person goes insolvent during the year of assessment
In each of these circumstances the rebate will be proportionally reduced.
It is SARS practice to apportion the rebate according to the number of days in year during which taxpayer was alive or number of days prior to insolvency.
Tax thresholds
Employees that earn below a certain threshold do not pay tax at all. (2023 – under 65 – R 91 250)
The tax rebate is actually the amount that determines the
Tax threshold or vice versa.
The primary rebate indicates from which annual amount a person starts paying tax.
If you divide the primary rebate (R 16 425) by the first percentile in the tax table (18%) you get R 91 250
To limit the burden of normal tax payable , SARS has two systems enabling taxpayers to prepay their taxes
- Employed individuals make use of the Employees Tax system to prepay known as PAYE (allows for weekly or monthly prepayments)
- For persons that are not employees, SARS has the provisional tax system whereby such persons can prepay their income tax (typically includes three payments)
The balance of tax due or refundable for the year of assessment is
The net normal tax payable less the tax already paid.
If the taxpayer had already paid an amount which is more than the net normal tax payable, the difference will be refunded by SARS.
If the taxpayer has paid an amount which is less that the tax liability calculated, the taxpayer will have to pay the outstanding amount to SARS.
The basic formula for the calculation of income tax
The formula for taxable income is used to determine:
Taxable liability as per tax table for individuals or a flat rate for legal persons
LESS: Rebates
= Net normal tax payable
LESS: Prepaid taxes
= Net tax due / refundable
