The month of July annually marks the start of the Tax Season in South Africa. For many this is a daunting task, especially young adults, but it doesn’t have to be. Tax Planning is a life skill which you need to master over time, often years. It is always advisable to stay on the cautious side of the taxman and ask for help from a professional if you are uncertain.

Types of taxes

First you need to understand the types of taxes you are responsible for paying:

1. Normal Income Tax is the tax you pay on normal income like your salary, interest and rental income. There are different tax brackets. The higher your income, the higher your tax bracket. The lowest bracket at the time of writing is 18% for those with an annual taxable income lower than R237,100. The highest bracket at the time of writing is 45% for those with an annual taxable income higher than R1,817,000.
2. Dividends Tax is levied on dividends distributed by companies to their shareholders. The current rate of dividends tax in South Africa is 20%.
3. Investors who make donations or gifts above certain thresholds may be liable to pay donations tax. Donations tax is calculated at a flat rate of 20% on the value of the donation up to R30 million, and at a rate of 25% on donations over and above R30 million. However, SARS makes provision for a donations tax threshold of R100 000 and below which no donations tax is payable. Donations between spouses are tax-free, but donations to children count towards the R100,000 limit.
4. Capital Gains Tax (CGT) is the tax you pay when you sell an income-producing asset like a rental property, shares, or cryptocurrencies. CGT is calculated as follows.

• • The first R40,000 is tax-free. SARS won’t tax you on anything under R40,000 profit per tax year.
  • The balance has an inclusion rate of 40%.
  • If you are in the highest tax bracket, you will pay 45% tax on the 40% included in your tax calculation.

Other taxes investors will encounter

5. While not directly related to investments, VAT is a general consumption tax imposed on most goods and services. Investors may be subject to VAT on certain services or transactions related to their investments. Your broker will charge VAT on fees in your investment account. Make sure you look at the Total Expense Ratio (TER), including VAT when making investment decisions.
6. Securities Transfer Tax (STT) is levied on the transfer of listed securities, such as shares and units in collective investment schemes (mutual funds). The current STT rate in South Africa is 0.25% of the transaction value.
7. When purchasing property or real estate, investors may be required to pay transfer duty. This tax is based on the value of the property and is payable by the buyer.

Good habits to follow

How can young adults better prepare for their responsibilities in terms of taxes?

• Educate yourself about tax laws and regulations that apply to your specific circumstances. Familiarise yourself with concepts such as taxable income, deductions, credits, and filing requirements. YouTube is an excellent source of information. SARS regularly hosts live events on YouTube to educate individuals and small businesses. [Ed. – You can also visit the Tax Tuesday blog for an extensive discussion of various aspects of tax.]
• Maintain a well-organised system for your financial records and documents. Keep track of all you IRP5 employee tax certificates, SARS logbooks, medical tax certificates, other medical expenses incurred, retirement annuity contribution certificates and all tax certificates indicating interest and dividend income received. If you have a side hustle, keep accurate records of all income and expenses.
• Calculate your total income from all sources, including salary, interest, dividends, rental income and any other income. Identify potential deductions and credits that you may qualify for. These might include rental expenses, interest paid for investment properties and home office expenses.
• Take advantage of tax-advantaged accounts like Tax-Free Savings Accounts (TFSA) or employer-sponsored retirement plans. These accounts offer tax benefits and can help reduce your taxable income while saving for retirement.

If you are unsure about tax matters or have complex financial situations, consult a qualified tax professional. They can provide guidance, help you optimise your tax strategy, and ensure compliance with tax laws. You might get a refund, but ultimately you want to remain tax compliant to avoid unnecessary penalties and interest charges.

Rochelle Warries is a qualified chartered accountant with 16 years of experience and a seasoned stock market investor. Her passion is helping novice investors build healthy investment portfolios through financial education.

She is founder of Soul Financial, a website offering financial education and coaching. You can find her on Twitter: @soulfairy3