What is the Law on Personal Income Tax?

Nobody likes paying their taxes and anyone who says that they do is lying. Sadly, it is a necessary part of life and something that most people have to put up with regardless of how much they hate it. Sadder still is the fact that paying taxes can be quite complicated sometimes. There may be different types of tax to pay, they all work at different rates and, more often than not, the process isn’t exactly quick. So before you end up paying more or less to the government than you actually should, it may be worthwhile to figure out the basics. What is Personal Income Tax? How is it Calculated and What does the Law say about it? What is the Law on Personal Income Tax?

Personal Income Tax is just the normal tax that you are required to pay on your taxable income. ‘Income’ in this context includes many different sources such as –

• Salaries
• Wages
• Overtime Pay
• Trade Profits
• Rental Income or Losses
• Pension Income
• Etc

In certain circumstances, a Capital Gains Tax (CGT) may be connected with your standard income tax so make sure that you know which is which.

Additionally, gains made from practices such as Day Trading or Swing Trading are considered to be a type of revenue and as such are subject to a Personal Income Tax.

Ok, now we know what it is, so how much is it going to cost us?

How is Tax Calculated on Salary?

Your Income Tax rate is mainly based on your taxable income (although certain factors such as your marital status can change things up slightly). The exact amount required changes from year to year but, as of March 1st 2021, it looks something like this –

Again, it should be noted that each person’s taxes are going to be highly individualised, and thus, the given table only covers the most basic formula.

What kind of Factors Influence my Personal Income Tax?

Depending on your different sources of income, the calculations required to figure out your specific tax rate may require an entire flock of tamed accountants. That said, there are some common influencing factors that most people should be aware of, for example –

• Exemptions – Certain amounts of income made from interest and dividends may be exempt from income tax although some other charges, such as a dividend tax, may apply instead.
• Deductions – Individuals are often able to subtract the cost of certain expenses from their adjusted gross income in the form of deductibles. However, the types of tax deductions that may be made will depend on the type of income you receive. These deductibles can include things like – pension fund contributions, certain donations, certain legal costs, etc.
• Age – It is important to remember that the tax threshold rises as you get older. We will go into more detail about this later.
• Filing Status – Couples married in community of property are often taxed differently than others, as such, your marital status may change the amount of tax you end up paying.

What is the Minimum Salary to Pay Income Tax in South Africa?

Each year, SARS determines the amount of income any individual may accrue before they become liable to pay income tax, this is known as the Tax Threshold. This threshold is relaxed slightly as you get older with elderly South Africans being subjected to a higher threshold than others.

For the period of 1 March 2021 – 28 February 2022, the threshold works as follows –

If you are earning less money than is noted for your age bracket you will not be required to pay income tax.

How Much Money can you Legally make without Paying Taxes?

Generally speaking, any type of revenue which exceeds the aforementioned threshold will be subject to some level of income tax. While there may be different applicable taxes in any given scenario which may have lower rates than your personal income tax, it is unlikely that you’ll be able to make any substantial amount of money without at least paying some tax.

What Happens if you Do Not Pay your Taxes?

People who do not pay their taxes or attempt to use illegal means to lower the overall amount that they have to pay are committing Tax Evasion and may be subject to punishments ranging from financial penalties to prison sentences.

The main factors which will determine the severity of these punishments will include –

• the unpaid taxes so far (the tax shortfall) with financial penalties ranging between 5% – 200% of the shortfall
• the extent of the criminal activity which was undertaken during the evasion.

If, for example, an individual lies to a SARS official when confronted about a shortfall, they may be subject to a harsher punishment than a person who simply paid for their shortfall and the related penalties when caught. In more serious cases involving this kind of deception, a tax dodger may be sentenced to up to 5 years in prison.

Tax evasion should also be distinguished from tax avoidance which is the practice of using strategies found within the tax system to legally pay less.

Do you Always Have to Submit a Tax Return?

Not always. Depending on your circumstances, you may not need to submit a tax return. These circumstances include many elements ranging from the amount of interest you earned in the year to the number of Capital Gains/Losses you made and even your age bracket. Luckily, SARS has compiled a short online questionnaire that can help you determine whether or not you need to submit a tax return.

In Conclusion – What is the Law on Personal Income Tax?

Personal Income Tax is mainly calculated based on the amount of income you made during the year, although other factors do play a part. In this context, ‘Income’ is an umbrella term that covers everything from your wages/salary to your overtime pay and trade profits. Revenue made from practices such as Day Trading or Swing Trading is included within this definition and is thus subject to a Personal Income Tax. 

For the most part, SARS will highlight the amount of tax that is required each year based on your taxable income. That said, many variables need to first be accounted for including things like your deductible expenses, exemptions and filing status. Age also plays a key role here as the tax threshold rises as a person get older.

The tax threshold is the maximum amount of taxable income that is earned by an individual before they become liable for an income tax. Once you start to earn more than is stipulated by this threshold, you will need to begin paying an income tax. Citizens over the age of 65 and 75 respectively will be subject to a higher threshold.

Submitting tax returns is not always necessary and certain individuals may be exempt from this practice depending on their circumstances. Once you pass the tax threshold, it is illegal to not pay your taxes or to use illegal means to pay less than is required. Usually, such a person will be subjected to financial penalties which are commonly based on their tax shortfall, however, in more severe cases involving deception and widespread criminal activity, the culprit may be sentenced to time in prison.

Disclaimer LAW101: All of our posts are for research purposes only. Law 101 aims to assist its readers with useful information on the laws of our country that can guide you to make decisions in line with the South African Governmental Laws currently in place. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law. Should you require specific legal advice we advise you to get in touch with a qualified legal expert.

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