What tax deductions can I claim as a salaried employee?

News24

2 days ago

Starting your working career with a steady salary is an exciting milestone – both for you and the Tax Man. As the South African Revenue Service (SARS) says: 'It's simple. You pay tax when you begin to earn income of more than the legislated amount for that year, and you pay it all your working life.'
Sobering? Yes. But the good news is that you can reduce your tax bill by understanding the amounts which can be deducted before the calculation of employees' tax (Pay As You earn (PAYE)) or before your tax return is assessed.
Here is the list of expenses you can consider claiming for tax purposes.
Retirement fund contributions
Contributions to a pension fund, provident fund, or retirement annuity fund are tax-deductible and can reduce your taxable income. The deductions can be claimed in the year the contributions are made.
If you are employed, your employer may contribute on your behalf, and although this contribution is taxed as a fringe benefit, both your and your employer's contributions are treated as your personal contribution and can be deducted accordingly. Your employer will take this deduction into account before calculating your Pay As You Earn (PAYE) tax.
If you contribute to a retirement annuity (RA) in your own name, this contribution can also be considered for tax deduction when you submit your tax return.
There is, however, a limitation. Total contributions across all qualifying retirement funds are limited to 27.5 percent of your taxable income, and is capped at R350 000 per year.
To assist with your tax filing, the institution to which you contributed will issue a certificate confirming your total contributions for the tax year. SARS requires that you keep proof of contributions for five years.
Medical and disability expenses
Every year during the Budget Speech, the Finance Minister announces the medical scheme fees tax credits you are entitled to claim for the contributions you pay to belong to a medical scheme. This is not strictly a tax deduction, as this credit reduces the tax you owe rather than your taxable income.
You can claim a monthly tax credit for yourself as the main member and the first dependent, and a lower amount for each additional dependent. You will find the current tax credits amounts in our tax tables.
Only the person who actually paid the medical contributions may claim the credits. For example, if your adult child pays your premiums, they are entitled to the credit, not you.
You can also claim additional medical tax credits for qualifying out-of-pocket expenses not reimbursed by your medical scheme. Ensure you have proof of payment, such as receipts, to confirm that these expenses have been paid.
A taxpayer, his/her spouse or child with a permanent or temporary disability, is entitled to an additional tax credit for disability-related expenses incurred. Consult the SARS list of qualifying disability expenditure.
The Income Tax Act allows a taxpayer to deduct any expenses related to a physical impairment (not classified as a disability), provided they affect a family member whom the taxpayer legally supports.
Work-related travel expenses
If you receive a travel allowance or drive a company vehicle your employer has provided, you may qualify for a tax deduction on kilometres you clock up for work (business) purposes during the year.
A travel allowance is taxed based on estimated private versus business use, while the use of a company car is treated as a fringe benefit and taxed accordingly. Claiming your work-related travel expenses can reduce the tax you pay on the allowance or fringe benefit.
Start by recording your vehicle's odometer reading on the first day of the tax year, and remember to record it on the last day of the tax year.
A detailed logbook recording dates, destinations and business kilometres is key.
You can record your actual expenses for fuel, maintenance, insurance and other costs, or you can claim the deduction using the table of costs supplied by SARS each year.
Note that home-to-work travel is private and not deductible, unless you work mainly from home and travel to other business sites.
Donations
Donations to certain public benefit organisations (those approved in terms of Section 18A of the Income Tax Act) are tax-deductible. As an individual taxpayer, you can claim such donations as a deduction, up to a value of 10 percent of your taxable income.
Donations to approved organisations do not incur donations tax, but donations to any other organisations or people that exceed R100 000 a year may incur donations tax and will not qualify for a tax deduction.
Depreciation of tools
If you use personal devices such as a laptop or cell phone for work purposes, you can claim the diminishing value or depreciation of that device as a tax deduction.
If you are employed, and you buy and maintain the device in your personal capacity, you must obtain a letter from your employer confirming that you are permitted to use your personal device for work. This letter is important to substantiate the deduction you claim.
Home office expenses
There is typically little room for salaried employees to claim a tax deduction for home office expenses and SARS is increasingly scrutinising such claims.
If you claim for home office expenses, SARS may request proof that you have a dedicated workspace, including floor plans, photos and expense records to verify your claim.
You may qualify for a tax deduction for home office expenses if you mainly work from home in a space used exclusively and regularly for work, such as a study with a desk and computer, or a room with trade-specific equipment such as medical equipment in a dentist's room or the tools a mechanic uses.
If you use your home office occasionally or you use a mixed-use space it is unlikely to qualify. The dining room table serving as a desk during the day but for family dinners at night will not cut it.
Subsistence claims
If your employer reimburses you for travel and meals while away from home for work purposes at SARS's deemed rate, these amounts are tax-free. However, any reimbursement that exceeds SARS's daily limits for meals and incidental costs is taxable and you can claim a deduction against the allowance for your actual expenses. You must be able to provide proof of your expenses.
Deductions against commission income
Taxpayers earning commission income that makes up more than 50 percent of their income may claim certain expenses incurred in the generation of their income.
These expenses may include travel expenses, wear and tear of laptops, cell phones or other devices and home office expenses. Before you claim a deduction, make sure it meets SARS's requirements.
Refunds to an employer
At times you may be paid a taxable amount by your employer that you need to repay later because you don't meet the conditions on which the amounts were paid. For example, a bursary or maternity leave pay, paid on condition you remain employed for two years while you study or after the birth of a child. If you are then offered a better job or decide not to continue working, you may need to repay the taxable amount. You can then claim it as a taxable deduction.
Note that under certain conditions, bursaries and scholarships may be tax-free. For a refund to qualify as a tax deduction, the bursary would have had to be a taxable one.
Accounting fees
You are entitled to deduct accounting or administration fees for the completion of your income tax return if your taxable income is earned as a freelancer, sole proprietor or other income you earn as, for example, a landlord.
This applies only to professional fees actually paid or payable for the completing the income tax return.
Foreign employment exemption
South African residents earning an income for employment in a foreign country are exempt from paying tax on the first R1.25 million of this income, provided they are out of the country for more than 183 days (including an uninterrupted period of at least 60 days) during a 12-month period.
Any remuneration above the R1.25 million threshold, will be subject to normal tax in South Africa, regardless of whether you are taxed in another country. Where a Double Tax Agreement is in place between South Africa and the host country, taxpayers can use the provisions of the agreement to avoid double taxation on the same income in both jurisdictions.
Side-hustle business expenses
If you have declared the income from your side-hustle business, you can claim deductions such as those for travel, home office and other business-related expenses against this income, but not against your salary.
Remember that earning from multiple sources can push you into a higher tax bracket as you are assessed on your total income. The PAYE your employer deducts monthly and pays to SARS is in respect of your salary only. This advance tax payment may not cover your final tax liability when all your income is added up.
Tip: Get help
If you are unsure about whether you can deduct an expense from your taxable income, consider consulting a tax professional to help you maximise the available tax-deductible benefits while staying fully compliant.