Employees now have fewer opportunities to deduct work-related expenses from taxable income that is not earned as commission.
Under current income tax legislation, you can deduct from your taxable income specified expenses, such as pension contributions, as well as expenses that you incur in the course of doing your job and earning income.
When you submit a claim for such expenses, the South African Revenue Service (SARS) has to split the expenses into those that are for personal use - which are not tax deductible - and those that are for business use, which are deductible. This results in a significant administrative burden for both SARS and taxpayers.
The government has therefore moved to simplify the taxation of employment income and to limit employee deductions from March 1 as follows:
The amount that you can claim as a tax deduction of contributions to your pension fund is limited to the greater of: 7.5 percent of the income on which your pension is based; or an amount of R1 750.
In the case of retirement annuities, you are allowed to claim as a tax deduction the greater of: 15 percent of your taxable income from non-pensionable earnings; or R3 500 less your current contributions to a pension fund; or an amount of R1 750;
Certain medical expenses will still be allowed as a deduction. Currently, if you are under 65 years old, you are allowed to deduct medical expenses which are either the greater of five percent of your taxable income or R1 000. It is proposed that the R1 000 threshold be removed. If you are over 65 you will still be able to deduct the contributions to your medical scheme as well as all your medical expenses not covered by the scheme from tax;
- Business travel against an allowance;
- Donations to certain public benefit organisations;
- Costs incurred against allowances paid to holders of public office; and
- Provision for wear and tear on equipment.
Entertainment allowances have been scrapped from the list of deductions that you can claim.
These limitations only apply to you if you earn a commission-free income and not if you earn an income mainly from commissions based on sales or the turnover of your company.
Other measures which will take effect from March 1 include:
- The scrapping of the R150-a-day subsistence allowance that your employer was previously able to give you to cover the deemed costs of accommodation, meals and other expenses which you incur while doing your job outside of office. You can still be re-imbursed by your employer for expenses incurred; and
- The deemed expenses provision paid by your employer to cover your personal subsistence and incidental costs where you are personally responsible for meeting these costs will be limited to R65 a day.
Currently, employers are allowed to provide employees with occasional services to the value of R500 and not include this in the income of the employee as a fringe benefit. Finance Minister Trevor Manuel has suggested that this occasional service tax benefit be scrapped from March 1 as part of an effort to ensure consistency in the taxation of fringe benefits.
The Income Tax Act sets various thresholds below which you are not taxed. These thresholds need to be adjusted from time to time to take the effects of inflation into account. It has been proposed that the following thresholds be changed from March 1:
- The exemption on bravery and long-service awards will be increased from R2 000 to R5 000; and
- Currently, employees earning R50 000 or less may be granted a tax exemption of R1 600 on scholarships or bursaries received from their employers. From March 1, the salary level will be increased to R60 000 a year and the tax exemption will be lifted to R2 000.
Other articles on the budget in this week's issue:
Manuel delivers on his promises
South Africans are now R38 billion richer
Trevor tends to the poorest of the poor
Small business to get big benefits
Dig deeper to finance your 'unhealthy' habits
Tax on retirement funds up for review this year
Road Accident Fund could get R310m more this year
Relief for savers as exemptions on local income climb
Estate duty relaxed, but trusts take a blow