Tax time: Tips, treasures and revolting returns
As the end of February looms, everybody prepares to assess their year’s earnings and submit income tax returns – and every year it may seem more onerous. But there are a number of ways to simplify, clarify and even rectify some quirks and errors that may leach out from the pages of previous returns.
One important factor is that income tax is geared to be fair and expects your honesty in return. Tax systems have been around since the beginning of recorded history – and the process is therefore well-versed in the tricks of the sly and the shady. After all, tax is the basis of all government, administration, development and economies. It is the driver of the order and structure of society. Tax is the way we have created our modern world.
Death and taxes
Taxes have caused wars, popular revolt, and in many ways charted the course of history. As far back as ancient Egypt taxes were levied on the populace for a range of items, including oddly enough, cooking oil. Ancient Greece levied special taxes during times of war (which were fairly numerous) and paid them back if the winnings were good. Caesar Augustus was considered a brilliant tax strategist, instituting an inheritance tax to provide retirement funds for the military. So even in Roman times, death had become an expensive business.
Taxes can be a dangerous business as well. In 60 A.D. Boadicea, queen of East Anglia, led a revolt that can be attributed to corrupt tax collectors in the British Isles – a revolt that led to around 80,000 being killed. A key factor in the endless drag of the 100 years’ war was the rebellion of the nobles of Aquitaine over the oppressive tax policies of the Black Prince. In 1629 Charles I had a disagreement about the rights of taxation and, as a result of the protracted confrontation, eventually lost his head.
What is tax money used for?
While taxes have embroiled us in debate, disagreement and disinclination for centuries, they will never go away because the system is fundamental to the progress, improvement and development of more sophisticated societies.
- The primary function of taxes is to create a stream of revenue for the government.
- Almost every aspect of government is paid for by taxes, from politicians’ salaries to government workers, the building of roads, the defense force, education, law enforcement, public services such as parks and libraries, etc.
- Taxes also serve to redistribute wealth from the rich to the poor. By charging higher taxes to those with higher income, the government is able to supply benefits to those with a lower income, including health benefits, child benefits, unemployment assistance, disability and old age pensions.
Tips for tax returns
- Make sure that your employer provides you with your IRP5 before 1 July so you can compare this to the previous one submitted to SARS. You need to check your IRP5 details, employment income and deductions, as well as the PAYE paid. This also may offer insight to any missed opportunities for claiming deductions.
- Contributions to a retirement annuity is tax free, which means that you can claim back the tax on your contributions. To capitalise on this benefit for the current tax year, you will need to add funds to your retirement annuity before the end of February. This is doubly beneficial, since you are not only able to earn back some cash on the tax, but you are also contributing to your retirement.
- In recent years, treasury also launched tax free savings accounts, which offers the ideal opportunity to save for long-term goals, such as your children’s education, an overseas trip or retirement. All proceeds towards such an investment are tax free, with the added benefit that the funds are not fixed for a specific period. The maximum annual contribution that is permitted into a tax free savings account is R30 000.
- As soon as tax certificates are collected for the tax year, store them in a separate folder, so when the time comes to file you have everything to hand. These would be IT3b interest certificates, IT3c capital gain/loss certificates and donations exemption certificates.
- Make sure you qualify for deductions well in advance of submission dates, taking time to take advantage of all the tax knowledge and tools at your disposal. If you are serious and diligent about this, you will ultimately find ways to reduce the amount of tax you may have to pay.
- Be sure to keep your medical aid certificates as well as all proof of payments and any out-of-pocket medical expenses.
- Don’t forget that donations to your favourite charities are tax deductable.
- If you are using a registered tax practitioner be sure to enquire whether they are registered with a controlling body such as the South African Institute of Chartered Accountants or the South African Institute of Taxpayers.
- If you have sold a property during the tax year, be sure to have the valuation certificate available as this will be used as part of the base cost to determine the Capital Gains Tax to be paid on the sale of the property.
- If you earned income from a side business, remember to keep records of all incomes and business related expenses and include them in the “local business” section of your income tax return.
- Make sure your banking details are up to date. Obviously, you will not receive any refunds if the records SARS holds are out of date.
- Double check everything before submitting. SARS may penalise you for errors they call, “failure to take due care” in completing one’s return. The penalties can be up to 50% or even 100% of the tax effect of the error in some cases.
- Keep records for at least 5 years in case of a tax audit. Make sure that each year’s returns are separately filed together with any supporting documentation.
One important tax tip is to know the difference between evasion and avoidance. The former is illegal, the latter not. So, if you’re thinking of putting money offshore in a tax haven – considered by some as modern day treasure chests – be sure that you are mitigating taxation in a manner that is legal in your country. And, as a matter of interest, should you genuinely come across a hoard of gold coins buried in your yard, then the value is indeed taxable – not on the sale of the goods, mark you, but on the find itself.
Let our expertise be your peace of mind
The BellRyck Financial Group boasts a proud history spanning three decades. We offer short-term insurance, as well as long-term financial investment products and advisory services through our specialist network of service providers. We are also registered tax practitioners and can assist you with structuring tax efficient returns that are compliant with legislation.
Our commitment to fostering lasting relationships built on trust and personal service, has allowed us to create valuable partnerships with both individuals and businesses. Prescribing to the highest standards of ethics and integrity, we have developed the acumen and flexibility to successfully evolve with the changing financial needs of our clients.
Find out more by visiting: www.bellryck.co.za