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Income Tax in South Africa & Interest

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3 December 2013. Unless you like showing off to your buddies about your high gross return, it's irrational to choose an investment with a higher gross return, but a lower net of tax return. The aim of investing is to maximise our net of tax proceeds.

I've written before about how tax distorts the value of shares, but today I thought I'd take a step backwards and speak some aspects of income tax - this article does not even pretend to be a comprehensive guide.

Income tax is the money Government takes from you to provide services, uplift the poor and build vital security at Nkandla.

Income Tax rates

Every year the Minister of Finance announces the rates of tax chargeable on taxable income, in his (South Africa has never had a female Minister of Finance) budget speech. For the year of assesment ending 28 February 2014 the following rates apply:

Taxable Income

Rate of Tax

0 - 165,600

18%

165601 - 258,750

29,808 + 25% of taxable income above 165,600

258,751 - 358,110

53,096 + 30% of taxable income above 258,750

358,111 - 500,940

82,904 + 35% of taxable income above 358,111

500,941 - 638,600

132,894 + 38% of taxable income above 500,940

638,601 & above

185,205 + 40% of taxable income above 638,600

There are various rebates (which some think are unfair), which allow tax-free income up to the level of the rebates one is entitle to:

This means that if you're older than 75 and have taxable income less than R117,112 then you pay no income tax in the 2013/2014 tax year (not everything is bad about growing old!).

Local Interest Exemption

In the 2013/2014 tax year:

Special rules apply for foreign interest, as well as to individuals who are not tax resident in South Africa.

Married in Community of Property

It's worth having a quick look at what happens to interest income in the case of those married in community of property. IIn their guide to complete income tax returns, SARS specify that: "If you are married in community of property you must add together all the amounts received by you and your spouse in respect of local interet, foreign interest and foreign dividends." The reason for this is that after pooling the amounts, SARS then splits them down the middle for tax purposes. So, each spouse married in community of property is taxed on 50% of their joint investment income. Each spouse also benefits from the interest exemption.

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