Glossary & FAQ

Annuity

An annuity is a repetitive, periodic (usually annually or monthly) payment, that is owed to a person until their death or the happening of some other event. It is important to know that income earned from an annuity forms part of your gross income even if it does not fall under the general definition of “gross income”.

Dividends

Dividends are profits of a company that are distributed to shareholders. Dividends are exempt from income tax but are subject to their own tax at a rate of 20%.

Employee

An employee, for tax purposes, is someone who works for an employer that is able to control and supervise their work and pays them for it.

Fringe Benefit

A fringe benefit is a non-cash benefit that is granted to employees. Although the employee is not receiving cash for their services to their employer, they receive something else like, for example, contributions to medical aid; or use of the company vehicle in their private time; or free lunch; or discounts on products sold by the company. In terms of the general principles of income tax, an employee would still be required to pay tax on the value of a fringe benefit that is received by the employee.

Sometimes an employee may claim a rebate for at least some of the taxes paid on a fringe benefit.

Individual

When we refer to an “individual” or a “natural person” we are referring to a human being.

We distinguish between an individual / natural person and a company, which is also a “legal person”, meaning, among other things, that a company is also liable to pay tax.

Different tax rules apply to individuals and companies. In this course, we focus on the rules applicable to individuals.

Medical Scheme Contribution Tax Credit / MTC

Medical scheme contribution tax credit which is a rebate that may be claimed by persons who have paid for medical aid for themselves and their dependents.

Normal Tax

In the Income Tax Act, “normal tax” refers to the tax that is chargeable in terms of the Income Tax Act. Therefore normal tax and income tax have the same meaning and we may use either in this course.

Pay As You Earn / PAYE

A type of income tax that is paid by employees. An employer is required to deduct pay as you earn from your wage / salary and pay it over to SARS. Meaning that if you only earn income from a salary or wage as an employee, you will not be directly responsible for having to pay income tax to SARS.

Provisional Taxpayer

Any person who receives income other than remuneration or an allowance is a provisional taxpayer.

You must then pay at least two amounts in advance during the Year of Assessment, based on your estimated taxable income for that tax year.

Public Benefit Organisation / PBO

A public benefit organisation (or PBO for short) is a non-profit organisation for public benefit. Examples are charities, religious institutions and educational institutions.

In order to be classified as a PBO, the organisation must have been approved by SARS. You can find a list of approved PBOS on the SARS website by clicking on this link (https://www.sars.gov.za/businesses-and-employers/tax-exempt-institutions/approved-section18a-pbos/).

Rebate

A rebate is a tax refund. For instance, if you pay tax on a fringe benefit, like a monthly travel allowance, you are allowed to claim back a rebate to the extent that you spent the monthly travel allowance on travel for work.

Another example of a rebate is the primary rebate on income tax which is applicable to all individuals. For the 2023 tax year, all individuals receive a rebate of R16 425, while those older than 65 receive a secondary rebate, and those older than 75 receive a tertiary rebate. These rebates have the effect of establishing tax thresholds. In other words, for all individuals, the first R16 425 of tax they have to pay is refunded to them. At a tax rate of 18%, this means that if you earn R91 250 per year or less, you do not pay any income tax (because R16 425 is 18% of R91 250).

Resident

For tax purposes, an individual is a resident of South Africa if the person is “ordinarily resident” in South Africa or if the person satisfies the “physical presence test”.

SARS

Stands for the South African Revenue Service. SARS is tasked with collected taxes in South Africa.

Taxable Income

Your taxable income is the amount that you pay tax on and is determined by using the following formula:

Taxable Income = Gross Income + Specific Inclusions – Deductions – Exempt Income

Withholding Tax

Withholding Tax is a tax that is levied at the source of the income. Dividends tax and PAYE are examples if withholding tax. For dividends tax, even though the shareholder is liable to pay it, the company paying dividends to the shareholder must deduct the dividends tax and pay it to SARS. Likewise, with PAYE, even though the employee is liable for income tax to SARS, their employer must deduct PAYE from their salary and pay it directly to SARS.

Year of Assessment

Income tax is payable on an annual / yearly basis. A year of assessment is often referred to as the “tax year” and is a particular year in which income tax is payable. The tax year in South Africa runs from 1 March to 28/29 February the following year.

Usually people refer to a particular tax year based on the year in which the year of assessment ends. So we are presently in the 2023 tax year which runs from 1 March 2022 to 28 February 2023.