Many people have already received their new-look colour-coded IT12S personal income tax returns from the South African Revenue Service (SARS). If you need to file a return for the 2002/03 tax year, and haven't yet received a form, contact your local SARS office to request a re-issue. Then fast-track your way through it with our two-part guide. This week, we take you through the income sections of the IT12S. Next week, we look at deductions. Then there is still plenty of time to mail your return to SARS before the July 11 deadline.
Who needs to submit a return?
If you did not receive a tax return it does not necessarily mean you don't need to submit one. It is up to you to establish whether or not you should submit a return and, if necessary, to register as a taxpayer with your local SARS office.
You need to complete a return if:
- You earned remuneration (a salary, wages or a pension) of more than R60 000 for the year after the deduction of pension and retirement annuity contributions; or
- You earned remuneration of less than R60 000 for the year, but your employer paid you a travel allowance; or
- You earned commission; or
- You are under the age of 65 and earned investment income of more than R6 000, or are 65 and older and earned more than R10 000 in investment income; or if your foreign investment income is more than R1 000); or
- You earned income from a business, farming or rent.
If you have received an income tax return, you must fill it in, even if you earned remuneration of less than R60 000 or your interest income is less than the amounts stated above. If you were unemployed, indicate the periods in section 2.2 of the IT12S return.
When is your return due?
Your income tax return must be submitted to SARS by July 11, 2003, unless you haven't received all the documents you need to fill in the return. In this case, contact your local SARS office or visit the SARS website at www.sars.gov.za to apply for an extension in order to avoid penalties and a possible conviction.
Where to begin
Start by collecting all the documents you are likely to need for the tax year March 1, 2002 to February 28, 2003:
- The IRP5/IT3(a) certificate supplied by your employer;
- Details of interest income you earned (usually sent to you by the companies which hold your investments);
- Details of annuities (regular payments similar to pensions);
- Details of any income you received for renting out any property you own (as well as details of any loans over that property and any payments you made for repairs, rates and insurance of that property);
- Any income advice you have received for any other payments received; and
- Details of any capital gains you made from the disposal of assets.
The IRP5/IT3(a) certificate is your employer's notification of what you have earned and of amounts deducted from your remuneration and pension.
Next week, when we deal with deductions, you will need other documents, including medical scheme statements, receipts of doctors' and other medical bills you have paid and intend to claim, and your car logbook, if you kept one.
Personal details ... section 1
If you have filled in a return previously, you will find your personal particulars printed on page 1. Check that these details are all correct and fill in the white areas only if your particulars have changed or have not been printed in the shaded areas.
Take care to ensure that your banking details are correct, so that any refund due to you can be paid directly into your account.
Do not forget to sign the return at the top of page 1. If you send SARS an unsigned return, it will be sent back to you and you run the risk of being penalised for late submission. Before you send it off, make copies of your return for your own records.
Income ... section 2
In section 2 you must list all types of income for which you have received an IPR5 or IT3(a) certificate. Unless you only receive a salary, commission or pension, you are likely to have to turn to one of the colour-coded schedules at the back of the return to fill in the details of your investment income, rental income or capital gains.
In section 2.1, state the main source of your income over the year to February 28, 2003 - that is, salary, pension, investment income, rental income or foreign income. You do not need to insert the code as it refers to the sector of the economy you work in, such as agriculture, construction, the public service, or whatever, and will be inserted by SARS.
Income from employment
If you receive a salary, commission, pension or annuity ... turn to section 2.2
To fill in this section, the information you will need is on the IRP5 or IT3(a) certificate you should have received from your employer.
If you are a salary earner, for example, your IRP5 should state how much of what you earned was salary, how much an annual payment, how much a travel allowance, and so on. Write down each of these together with the name of your employer (or pension fund if you are retired) and the period during which you earned this income. This time you do need to fill in the code which you should find on your IRP5. Examples of these codes are:
Salary: 3601
Bonus (annual payment): 3605
Travel allowance: 3701
Other taxable allowance: 3713
Commission: 3606
Monthly pension: 3603
In the column headed "RF Ind", you need to indicate with a "Y" (yes) or an "N" (no) whether or not the income you received was "retirement funding" - copy the same "Y" or "N" which appears on your IRP5 next to the income description. Retirement funding income means the amount of your income that is used for the purpose of determining your pension fund contributions and those of your employer. This income can include salary, allowances, commission and fringe benefits, depending on the rules of your pension fund.
It is important to fill this in because it determines the amount that SARS will allow you to deduct for retirement annuity contributions.
If you run out of space, for example, if you have worked for more than one employer during the past tax year, add items with the same source code together and list these as one item. Then write up all your income and allowances under the same headings on a separate sheet of paper and attach it to your return.
Previously, the tax returns provided separate sections for lump-sum payouts from pension funds, provident funds or retirement annuity funds; for leave pay; and other gratuities, including retrenchment pay. These amounts must now all be entered in section 2.2.
Although some of these payouts have already been taxed, based on information sent by, for example, your pension fund to SARS, you still need to fill in the full amount because it is possible you paid too little or too much. SARS will calculate the correct amount of tax due, taking into account the amount of tax you have already paid.
Income from investments
If you earned income from investments locally or abroad ... turn to schedule 1 on page 6
The tax return distinguishes between:
- Interest income from local investments;
- Interest income from foreign investments; and
- Foreign dividends.
You need to list all the interest income from local investments in the box headed "local" and all that from foreign investments in the box headed "foreign" in section 1 of schedule 1. Use the income advice sent to you by the institution that holds your investment. You must list all the interest you earned, including interest from savings accounts, fixed deposits and unit trusts. Add up the total amounts and transfer these to sections 2.1 and 2.2 of the schedule.
Your unit trust advice should give you both the interest earned and the dividends earned. You do not have to declare the local dividend payouts that you received on local unit trusts funds or from South African shares on your return, as these are still tax-free. Dividends earned from foreign investments are, however, taxable - add up all the dividend payments you have received and put the total in section 3.
If you have earned dividends from foreign shares, you must also state in section 3.1 whether or not you want to be taxed on the net dividends - that is, what you were paid after withholding tax was deducted in the country in which you earned the dividends. If you do this, you will not get any credit for the tax you have paid in the foreign country from which your dividends were paid.
If you tick "no", you are opting to be taxed on the gross amount and then you can claim the tax you have paid in a foreign country as a deduction in section 3 of the return (page 2), as long as you also submit proof that you paid this tax. SARS will calculate the allowable deduction in respect of foreign taxes paid.
Before you decide on an option, you should remember that there is a R1 000 exemption on foreign investments and if your dividends are less than this amount, electing to be taxed on the net amount will save you some paperwork.
Although you are exempt from tax on the first R6 000 of investment income you earn if you are younger than 65, and the first R10 000 if you are 65 years or older, you must fill in the full amount of the investment income earned. SARS will apply the exemption before calculating your tax. Of that R6 000 or R10 000 exemption, only R1 000 may be used as an exemption for foreign dividends and foreign interest. The first R1 000 of the exemption will first be off-set against any foreign investment income and thereafter against local income.
If you are married in community of property, you need only reflect half of the amount of investment income you earned. Your spouse will be taxed on the rest. If you are not married, or are married out of community of property, you must fill in the full amount of investment income you earned.
If you are not married to someone with whom you have jointly made an investment, you should split the interest amount in accordance with the investment split and provide SARS with an explanation.
Interest income from foreign investments and foreign dividends must be declared in rands. If your foreign investment was made through a local investment house, it will probably send you an income advice reflecting your interest income in rands. If not, you must use the exchange rate on the date that the interest was paid to you. The exchange rates can be obtained from your bank or you can visit the SARS website, www.sars.gov.za
Income from other sources
If you earned rental income ... turn to schedule 2 on page 7
If you own property and received rent from letting it out, you need to fill in schedule 2. First fill in the rental income you have received and then the expenses you incurred on the property, for example, on rates, insurance or repairs. If you have a bond on the property you let, you can include the interest you paid on that loan as an expense. Look this up on your home loan statements from your bank. Then you need to calculate the total profit or loss you made by deducting the expenses from the income you received. The profit or loss you made must be entered in section 2 of schedule 2.
If you are married in community of property, you may divide the result in half. If you have let only a portion of your property, the expenses claimed must be in the same proportion. So if it cost you R10 000 to paint your house and you are renting out half of it, you can only deduct R5 000 against the rental income.
Occupational rent you receive pending the transfer of a property you have sold is taxable.
If you made capital gains or losses ... turn to schedule 3
If you have sold or disposed of an asset, such as a second property, unit trusts or shares, you must declare the proceeds and calculate the capital gain or loss you have made. Some important assets are excluded from capital gains tax. These include any assets classified as personal belongings such as your car or furniture. Any gain you make on your primary residence (in which you live) is also excluded up to R1 million.
In schedule 3, you need to fill in the proceeds that you received from the sale or disposal and the base cost of the asset. The base cost is the value of the asset on October 1 2001, when capital gains tax was introduced, or if you acquired it after that date, the cost of acquiring it.
If the asset you are disposing of is one that was transferred to you by a spouse or one that was previously destroyed or expropriated, the base cost of the asset when your spouse had it, or before it was destroyed or expropriated, will be referred to as the rollover base cost and should also be filled in. There is also a column provided for exclusions and adjustments. Every year you are exempt from capital gains tax on the first R10 000 of gain or loss you make, but you do not need to fill this in in this column. SARS will take this into account. The column for exclusions and adjustments should be used if the asset you have disposed of was, or partly was, a personal-use asset, a primary residence or an assurance policy, excluding secondhand policies.
If you earned any other taxable foreign income ... turn to schedule 4 on page 8
Foreign income, other than interest on foreign investments, dividends and foreign capital gains, must be declared in schedule 4. You will need to fill in this section if, for example, you were employed outside South Africa briefly - see "If you worked overseas" below - and this income is not shown on your IRP5 or IT3(a) certificate. Anyone who earned money from a business operated in a foreign country should also fill in this schedule.
You need to draw up a separate schedule, including a deduction for any tax on the foreign income you have paid in another country, and attach it to page seven. Transfer only the total as either a profit or loss in schedule 4.
If you earned any other local income or accruals ... turn to schedule 5 on page 7
Use this section to declare any income you received which is not included in your IRP5 or IT3(a), such as income from royalties or usufructs.
If You worked overseas, earned a foreign pension, inherited money or won the lotto ... turn to schedule 6
Although South African residents who receive a pension from another country still do not have to pay tax on that pension, the government is looking into the taxation of these pensions. SARS needs to know how many taxpayers are receiving foreign pensions. So if you do receive a foreign pension you need to state as much in section 1 of schedule 6.
Fill in the amount you received after tax and convert it into rands using the actual exchange rate of the day you were paid. The exchange rate can be obtained from your bank or visit the SARS website, www.sars.gov.za
If you worked outside of the country and were out of the country for a total of 183 days in any 12-month period (not necessarily the tax year), of which 60 days were continuous, then the income you earned is exempt from tax in South Africa. Specify the amount in section 2 of this schedule.
This is also the section you need to use to declare any other money you have received during the year and which you regard as non-taxable. This may be an inheritance or a lottery winning.
If you run a business, practise a trade or profession, or farm for a living ...
If you are in receipt of this type of income, you need to complete an IT12BU return and to include your financial statements.
Compiled with the help of the South African Revenue Service