Simply put, a refund is given to you by SARS when you have overpaid your taxes taxes has been overpaid. But how does an overpayment happen and what is a so-called “tax payable”?
Let’s Understand The Tax Year
The tax year, for the individual, begins on the first day of March and runs through to the last day of February. I’m sure you have noticed your employer on a monthly basis deducting Pay-As-You-Earn tax from your salary. This is basically you paying off your tax liability for the year, through your employer, over to the South African Revenue Services. Your employer deducts according to the SARS PAYE deduction tables for the year of assessment based on your earning bracket.
This is done for two reasons:
1) To ensure that individuals, such as yourself, are paying taxes.
2) So that you don’t get hit with a massive amount that needs to be paid at once.
Submitting Your Tax Return
Once the tax year closes, you are required to complete and submit your individual tax return. Your tax is determined by applying the tax rate to your taxable income. It is called taxable income as not all income warrants tax implications, such as selling your bicycle to your friend or one of your parents giving you some money. Furthermore, there are deductions allowed which can reduce your taxable income. A few examples of these would be:
● Retirement annuity contributions
● Donations made to S18A certificate holding charities
When it comes to medical aid contributions, if you are the principal member and medical expenditure paid out of pocket granted, you can provide invoices and proof of payments.
Tax Liability and Tax Refund
Now that your taxable income has been established, your tax is calculated at a percentage based on SARS individual rates table for the year of assessment. This is your tax liability, what you owe.
A refund then occurs if the total amount paid over by your employer exceeds the total of your tax liability, as you are then entitled to this excess. It’s important to remember that SARS can only refund back what was initially paid over, it is therefore limited to the amount of PAYE paid over, on your behalf, by your employer.
We hope that this clears things up a little and that you can now claim back what is owed. Stay tuned for more bite-sized financial lessons and tips. Looking to gain more control over your tax? Enroll in one of our courses or give us a call today!