"I Owe SARS Every Year Because Of My Investment Accounts."

You were a disciplined saver(investor), doing the right things and saving for FUTURE YOU. All along you were earning some interest but never had to make a payment to SARS. Now SARS wants money, you feel like you have been treated unfairly and are being punished for doing the right thing, saving, and investing. Some people got a lumpsum — think retirement lumpsum, life insurance, or inheritance payout — they saved it, and now SARS wants a payment. You start swearing at SARS because “why are they taxing me when they already took tax from my income??!!”

It has happened to a lot of people I interact with. Family, friends, colleagues, clients, social media contacts…

Here is what’s happening.

Your investments are earning interest. That savings account, fixed deposit, cash compounder, and money market account. They are all earning interest. They all send messages to SARS notifying how much interest you earned for the year. You did not know that SARS is involved because you never earned more than the interest exemption. SARS allows you to earn up R23 800 before they start requiring you to pay tax on that type of income. This amount is higher (R34 500) for individuals over the age of 65.

If the total interest earned in a year is under these thresholds, SARS does not bother you. This is the simple reason that many people are not aware that INTEREST INCOME IS TAXED.

What you need to know:

1. SARS calculates your tax on TOTAL income, not just your salary. Labour income + Financial income

2. Your employer calculates tax as though it is the ONLY source of income you have (REMEMBER the controversial “hidden risks of SARS auto assessment” post?? Yes! That one!)

3. Since your salary is the only source that withholds income tax and pays it over to SARS, you will need to account for tax if you have additional sources of income

4. That means that your property rental income, influencer income, network marketing income, modelling side gig all have tax implications. Even those assets you sold for a profit (house, shares, collectibles) also need to be taken into account when calculating your total taxable income

5. South Africa uses a progressive tax system. The more income you earn, the more tax you will pay, ignoring exemptions and rebates at this point.

6. Tax avoidance - using legal methods to reduce your tax assessment. The most common strategy is using a Retirement Annuity to reduce your taxable income.

7. Tax evasion - using illegal methods to reduce your taxable income. Not declaring or under-declaring your income to reduce your taxable income. This opens you up to penalties if you are caught by SARS.

8. Tax efficiency speaks to structuring your finances to give you disposable income in the most tax efficient manner. An example of this is receiving income via dividends, which carry a flat 20% tax rate vs salary income which can be taxed up to 45%.

Many people impact their disposable income without proper analysis, and end up being worse off, with the only positive being “paying less tax”. Paying less tax is not a success if it leaves you without enough money to get through the month, or you end up carrying expensive debt chasing a tax benefit illusion.

Get familiar with all the tax rules, deductions, exemptions and rebates that may apply to your sources of income. Plan your income for the upcoming tax year. Find the most efficient ways to structure your finances. Work with a tax specialist if you have to; not the ones that promise to get you the maximum refund and then take a cut from that.

When assessing your options, weigh up the pros & cons, and look for blind spots you might have missed.

Do not make non-beneficial moves because you do not want to pay more tax. If you have never turned down a higher salary because of the additional tax burden, then you should not be shying away from having to pay extra tax as a result of earning more money....

Become tax smart!

BONUS:

This is some of the worst advice I have heard – I will not disclose where the advice came from, but you are free to guess...

1. Someone went and bought a house on bond, to rent it out so that they can deduct the interest as an expense

2. Someone went and bought a German luxury car because they were advised to reduce the value of their total assets so that they end up paying less tax

3. Someone went and donated money to a qualifying BPO just to reduce the total taxable income. This makes sense for someone who already donates, to find a more efficient way of donating, but when that is the ONLY reason for donating, it does not make sense.