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Since recent budget adjustments, taxpayers have become accustomed to paying higher taxes in a number of areas.
The VAT increase is in full swing, estate duty has increased, fuel levies are adding extra strain to a seemingly bullish petrol price and the usual tobacco and alcohol duties all add to the consumer’s already heavy tax burden.
However, government has, over the years, come up with a few tax incentives designed to promote employment, boost small-to-medium business entrepreneurs and promote scientific and technological innovation.
Nicole Janse van Rensburg, manager at Hobbs Sinclair Advisory, sheds some light on these lesser-known tax incentives.
Home office expenses
Following the global trend, many people prefer the freedom and autonomy of working from home, thereby saving themselves stress and the loss of productivity owing to a daily commute to the office.
Self-employed individuals and employees who often work from home may be able to reduce their taxable income by claiming some home office expenses.
- However, Janse van Rensburg warns that the SA Revenue Service (SARS) has set out specific conditions in order for individuals to qualify for home office deductions.
- If more than 50% of your income comes from a salary, you can qualify only if your employer allows or requires you to work from home and if you spend more than half your working hours in your home office;
- If you are a commission earner and your employer does not provide you with an office at company expense, you should be able to qualify.
- Lastly, you will definitely qualify for the home office deductions if you are a small business owner or a free-lancer who always works from home.
A home office
A specific part of your home needs to be used exclusively as your office. Working off your dining-room table or holding meetings in your living area will not suffice for SARS purposes.
A specific area of your home needs to be fully equipped for your office requirements. Taxpayers need to ensure that they have the necessary furniture, fittings, and computer equipment, and internet and telephone connections, amongst others.
It is important that taxpayers detail the square meterage of their home office on a floor plan as this will be used to determine what percentage of the office expenses will qualify as a deduction against taxable income.
Expenses that qualify
According to Janse van Rensburg, rent or interest on a bond will likely be the biggest deduction in most cases. Repairs to the premises and cleaning and maintenance services also qualify.
Rates and taxes and electricity are also deductible. Printing and stationery, telephone and internet and security also qualify.
An expense that many taxpayers overlook is the wear and tear on home office assets such as IT equipment and furniture and fittings.
“It is important that taxpayers can prove to SARS that the asset was specifically acquired for the home office and that it cannot be easily transferred to another part of the home.
For example, a specialised desk would qualify as a wear and tear deduction, however, an ordinary table that could be used elsewhere in the home would not qualify.
Research and development
SARS is very much aware of the need for South Africa to become more actively engaged in scientific and technological innovation to save the country from having to pay royalty fees to foreigners and to aid economic growth.
The fiscus has, therefore, provided a very generous tax deduction of 150% for all qualifying expenditure regarding scientific and technological research and development.
The details of this tax incentive can be found in Section 11D of the Income Tax Act.
Janse van Rensburg warns that this incentive is a complex one and taxpayers who feel they might qualify should contact a tax practitioner to assist with meeting the requirements and setting up the deduction.
Taxpayers whose projects are approved are required to submit a progress report to the Department on an annual basis.
Tax-savvy savings
With all the recent developments in technology, and information being readily available at our finger tips, it can be quite confusing as to where and how to make these savings as there are so many different opinions.
It is useful for taxpayers to consult an independent financial planner for advice tailored to their specific financial requirements.
The two main savings vehicles that SARS incentivises are tax-free savings accounts and retirement annuities. Both of these seem to cause some confusion.
A tax-free savings account can be a money market or fixed-term bank account, a unit trust investment, a JSE-listed exchange traded fund and many more. Interest and dividends earned are tax-free for life.
Contributions in respect of tax-free investments are limited to an annual limit of R33 000 per annum and a life time limit of R500 000. There are harsh punitive penalties for exceeding the prescribed contributions, so it is crucial that you adhere to the limits.
Retirement annuities are another investment tool that has tax-saving benefits. Individuals will receive a uniform deduction for contributions to retirement annuities, pension funds and provident funds.
The annual tax-deductible contributions are limited to the lesser of R350 000 or 27.5% of the greater of "remuneration" or "taxable income". Contributions in excess of the limit can be rolled over and utilised in the future.
It is important to note that the contributions to a retirement annuity are tax deductible while the contributions to a tax-free investment are not tax deductible. Annuity income is taxable while income from tax-free investments is not taxable.
It is, therefore, important to determine what will be best suited to the individual’s circumstances.
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