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How to calculate your personal tax

What you pay, what you get out, deductions and your tax category – Cathie Webb & Nicolette Nicholson – directors, SA Payroll Association.

SIKI MGABADELI:  Today we are asking how I should calculate my tax. I ask myself this question every day. Minister of Finance Pravin Gordhan of course released those updated tax tables in the budget speech, and this always comes towards the end of each government financial year. We know we all have to pay a little more, therefore getting less money in our pockets. But it is for the country’s development. So we get that.

But just trying to figure out what you are supposed to pay, what’s supposed to come back into your pockets, and where you fall in each of the categories, is what we are going to try and help you with today.

So give us a call on 011-731-8500. You can tweet us @SikiMgabadeli or @MoneywebRadio.

Let’s welcome my guests, Cathy Webb and Nicolette Nicholson, who are directors for the SA Payroll Association. Thank you so much to both of you.

CATHIE WEBB:  Thank you.


SIKI MGABADELI:  I’m not going to make this about me today. It’s about South Africans and why this is difficult to do on your own.

CATHIE WEBB:  I was sitting next to somebody during one of the of the many budget discussions post the budget, and she said, “I just don’t understand how it works.” I suddenly realised that people who work in payroll, as Nicolette and I do, understand and take for granted how to calculate tax. So we thought about trying to explain to people that firstly you need to go and find the statutory tax table. It’s a very structured process that is calculated every month by the people who are in the back office of you company, calculating your pay.

SIKI MGABADELI:  Exactly. And many of us run away from anything that’s got numbers, to begin with. But this is something that we have to do. So explain to me, in baby language, the tax tables and how you figure out where you fall in, please, Cathy.

CATHIE WEBB:  It’s quite difficult for me to explain without an Excel spreadsheet, but essentially there are levels of earnings defined. We are talking about taxable income. Calculating taxable income is already fairly complicated. But once one knows one’s taxable income, you know whether you fall into a category of earning between zero and – I have them here with me – R189 880 or higher than that, but less than R2906 540. There are 3, 4, 5 categories. This year a sixth and seventh category were added for people who earn over R1.5 million.

SIKI MGABADELI:  So the first thing you need to do is figure out where you fall on those tables. Now, when you look at your pay slip, some people are permanent staff members and have all sorts of benefits in there. Is it all of those things together and your gross, your net – what is it? I’m going to be as basic as that.

CATHIE WEBB:  Still not that easy.

NICOLETTE NICHOLSON:  We wish it was that easy.

CATHIE WEBB:  If it was that easy there wouldn’t be so many payroll administrators. You can’t just take your gross income, because it’s possible that some of it isn’t fully taxable. For instance, if you have a travel allowance and you are a sales person and you are doing many kilometres every month, only some of what you are paid to travel will be taxable. But once you have your taxable income for the month, you then need to multiply it out by 12 to get your anticipated annual income, and that’s when you start looking at the table.

SIKI MGABADELI:  Okay. Let’s talk a little bit about that, because I think figuring out what are the things – for example, your travel allowance, your medical aid, your pension and all of that – what are the questions you need to ask yourself?

NICOLETTE NICHOLSON:  I think what is also important is that your taxable income is not just what we understand as the money in your pocket or your bank account. It’s all your benefits as well. So things that you can’t see in money, but benefits that are being provided by your employer that you would have to go an buy somewhere else. But now your employer has paid for it, so you need to pay tax on that. I think that’s a complication.

And then the other complication is, like Cathy said, our tax tables are annualised, so we are working on a annual tax system, even though we tax you monthly. So if you receive a bonus late in the year, or you have cash leave pay because you have been terminated, that could put you in a higher tax bracket and [you need to] recalculate the tax that you’ve already paid and then take the shortfall.

So it’s not as simple as that, and one needs to understand it. That’s why a payslip becomes so complex and you think if I earn overtime, why does my tax fluctuate? When I change a medical aid plan why does my tax fluctuate? It’s because of all these reasons.

SIKI MGABADELI:  We haven’t even talked about pension. What happens in that scenario? Are there different categories for pensioners?

NICOLETTE NICHOLSON:  I think from March 2016 retirement fund definitions changed. Provident funds got added to the umbrella funds – your pension fund, your provident fund, your retirement annuities. You get an allowable portion that you can deduct from your income before you are being taxed. But likewise, your employer contribution then got added to your benefits, which never used to be taxable before March 2016. Provident funds never used to be tax-deductible but from March 2016 that got added into the retirement fund family, if you want to call it that.

SIKI MGABADELI:  And medical aid?

NICOLETTE NICHOLSON:  Medical aids as well. If you are being very responsible and you are on a medical aid, you then get a medical tax credit that’s reduces your monthly pay-as-you-earn. So if you do belong to a medical aid, the more children you’ve got and you’ve got a spouse, the higher your credit is that will be deducted from your pay-as-you-earn.

SIKI MGABADELI:  I need to ask about independent contractors. It is a very difficult one, because there was a time, I remember, a few years ago when people would say, oh, you know, you can go and have a coffee at a restaurant, and you keep your slip and you can file that as entertainment or whatever it was. Or if you just drive down the road to a meeting, you can claim for that as well. But it does become a little complicated, and I wonder if people do fully understand what it is they can claim for and what they can’t.

CATHIE WEBB:  I think if you are a truly independent contractor – in other words, you really are a business, then you can claim those kind of things because they are business expenses. But it’s quite a long time ago now that people thought that this was a loophole and a way of paying less tax. You claimed to be an independent contractor, but still went to the same office every day to work. I think the rule is if 80% of your work is for that same person, and you are under supervision, you are not truly independent. So there are now rules about measuring whether you are independent or not independent.

SIKI MGABADELI:  And you’ve got to take that into account.

CATHIE WEBB:  So if are independent, but not really independent, then you get taxed like an employee.

SIKI MGABADELI:  Let’s hear from Jack in Pretoria. Hi, Jack.

JACK:  Hi, Siki. I just want to ask a basic question here. I have a business. How much must your business be making before you can start paying tax? And when the deduction actually happens …

SIKI MGABADELI:  So how much in revenue should you be making before you would need to pay tax – is that what you are asking?

JACK:  Correct.

SIKI MGABADELI:  Thanks, Jack in Pretoria. Jack is a business owner and he wants to know at what point of revenue-generation do businesses need to pay tax? Is there a cut off, is there a minimum level set at all?

CATHIE WEBB:  I think that’s a difficult question for us to answer, because that’s a business-tax question rather than a personal-tax question. Different rules apply for business.

NICOLETTE NICHOLSON:  I also think that your tables and your rates are different, and you need to fill out your assessment forms. There are different sets of regulations that apply to businesses. So you can’t really apply the rules that you apply to employees to a business and say: how much must I earn or make before I start paying my taxes, and all of that? Our advice would be that you would need to seek an accountant who does your books for you.

SIKI MGABADELI:  And then work that out. What we might do, Jack, is have a separate conversation around businesses. Today we are focusing specifically on employees. Okay? So the next conversation we will have around tax will be specifically for businesses.

Let’s hear from KG in Cape Town. Hi, KG.

KG:  Hi, how are you guys? I just want to ask you a question. I work for government, and I want to know something. For example, normally we get 1.5, a progression, every year. I did get that percentage, for example it’s like R400, that pay increase in salary, and at the same time my tax increased the same amount. So I’m actually like getting less than what I was getting now. I want to know at what table am I at, and how did they calculate this thing, because I’m getting confused.

SIKI MGABADELI:  Okay. Any questions for KG?

NICOLETTE NICHOLSON:  I just want to find out – I didn’t catch the monthly salary.

SIKI MGABADELI:  KG, give us a rough estimate.

KG:  The rough estimate is like R23 000.

NICOLETTE NICHOLSON:  I think the important  thing is that one needs to just remember that if you get an increase, your medical aid increases, your pension fund increases – which means your taxable income will go higher than what your actual increase is, and that could push you into a higher tax bracket. What we said was that whether you get that increase earlier in the year or later or in the year will make a difference, and then that could re-calculate your taxes. It might seem that your tax is more or less equal to your increase, and it doesn’t then make sense, because your benefits increase.

CATHIE WEBB:  It is possible that even a small increase can put you into the next tax bracket, which is taxed at a higher rate.

SIKI MGABADELI:  Ja. And does it matter when you get your increase?

CATHIE WEBB:  March to February. If you get an increase in the middle of that period, your annual income is still going to be calculated again, including everything you earned before. So it may or may not make a big difference to the tax you are going to pay. But as soon as you get into the next tax year, the tables are going to apply again.

NICOLETTE NICHOLSON:  And I think, KG, your bracket will fall between 25 and 31% tax, which is already a high number. Remember, if you get an increase, your bonus that you get at the end of the year is higher, and that will also push you into a higher bracket. So sometimes you might think do I need to get the increase, or do I just stay on what I earn?

SIKI MGABADELI:  Phew, I never thought that having an increase would be an issue. Let’s leave it there. Unfortunately we are out of time. Thank you so much for coming in today, Cathie Webb and Nicolette Nicholson, directors at the SA Payroll Association.



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