2020 TAX SEASON: HOW TO SAVE and avoid penalties

Fadia Arnold writes that there is no way of avoiding tax if you are eligible to pay it, and procrastinating could cost you in penalties

IT WAS on 13 November 1789 that Benjamin Franklin wrote in a letter to Jean-Baptiste Leroy – a phrase that has reverberated ever since: “Our new Constitution is now established and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes”.

The thought had been expressed by two earlier writers. Daniel Defoe in The Political History of the Devil (1726) had said: “Things as certain as death and taxes, can be more firmly believ’d”, and even earlier in Christopher Bullock’s The Cobbler of Preston (1716) appears the line, “Tis impossible to be sure of anything but Death and Taxes”.

The above quotes have been used throughout the last several centuries as a reminder that tax is a finite part of one’s life and there is no way of avoiding it if you are eligible to pay it, most notably, if you earn an income.

Many taxpayers, despite the fact that the South African Revenue Service (SARS) has made the manner in which an individual is required to pay income tax simplified by means of its online system, still find the idea of paying tax complicated and rely heavily on tax practitioners to assist them in filing their tax returns or in reducing their overall tax to be paid.

There are several types of taxes to be paid in South Africa; however this piece will focus on income tax only, being what I have personally found to be the bane of my existence during busy and difficult times.

I recall quite vividly the year I was pregnant and on maternity leave for another year thereafter that I merely did not have the time or the energy to deal with filing tax returns and working out the online system all by myself. Note to those who have found themselves in similar forgetful and preoccupied periods: not filing your returns may lead to penalties and fines. Income tax, already being burdensome, is not more appealing if you are left with penalties for late filing of returns or not filing at all. Lesson: file your returns, even if you have to resort to paying a tax practitioner to assist you.

In addition to finding a tax practitioner to assist me this season, I requested some advice from my wealth management consultant, Nazeem Samodien, who has been working in the banking and finance industry for well over a decade, on ways to reduce one’s taxable income and increase one’s savings, and received the following handy tips I was not previously aware of:

Medical scheme deductions: If you are contributing to a private medical aid scheme, you are able to claim back medical expenses.

Tax-free investments: These are investments that are not taxed on interest, dividends or capital gains. Contributions to a tax-free investment during the year of assessment should not exceed R36000.

Donations: You can claim as much as 10% of your taxable income as deductions if donating to a charity or public benefit organisation. However, these organisations need to provide proof that they are registered as governmentrecognised charity or public-benefit organisations.

Reimbursed travel allowance: If you receive an allowance for business kilometers travelled; you will not pay tax on it if you can prove that you were travelling for work purposes.

Home office expenses: With the rise of work-from-home due to the Covid-19 pandemic, it is possible to claim home office expenses. This requires assistance from your employer to prove that you are using your own funds to pay for expenses related to your work, such as an internet connection.

It would be prudent to understand your individual income and tax situation and couple it to your financial goals. It helps to have a dedicated tax practitioner, financial adviser or wealth management consultant to assist you with your finances, if financial planning is not your strong point. Assistance will help you to avoid unnecessary expenses, find all available legal tax breaks, and maximise your tax refunds.

Finally, to ensure no penalties for late filing of your tax returns, diarise the following dates: due to Covid-19, SARS has extended the tax return submission process. The dates are:

1 September - 16 November 2020: Taxpayers who file online.

1 September - 22 October 2020: Taxpayers who cannot file electronically can do so at a SARS branch by appointment.

1 September 2020 - 29 January 2021: Provisional taxpayers who file electronically.

Fadia Arnold is a legal consultant at Arnold Law