- Granting allowance is not a foreign concept for companies in every part of the world. This article details how it is done in South Africa’s Tax administration.
Non-taxable allowances in South Africa represent allowances that cannot be deducted tax as there are several types of allowances granted by companies in South Africa and there is an established pattern of tax deduction.
It is pertinent to state that some allowances are taxable under the head salaries while some are partly taxable or fully non-taxable.
What are allowances in South Africa?
Allowances are the financial benefits that are given to employees by employers in addition to their regular salary.
They are usually granted by employers to either motivate employees to perform excellently or to provide relief in certain areas of their work and/or personal life.
Types of Allowances
1. Subsistence Allowance: This is any allowance given to an employee or a holder of any office for expenses incurred or to be incurred in respect of personal subsistence and incidental costs (for example, drinks, lunch, and parking).
2.Travel Allowance: This is an allowance given to an employee concerning traveling expenses for business purposes.
3. Allowance to a holder of a public office: This is an allowance awarded to the holder of a public office to help take care of the expenditure incurred by him/her in connection with his/her office.
This usually has to do with secretarial or duplicating services, stationery or telephone calls, the hire and maintenance of office accommodation, travelling, and so on.
Non-Taxable Allowances In South Africa
Below are non-taxable and partly taxable allowances in South Africa:
1. Allowance to a holder of a public office
- The part of the allowance which is liable to the deduction of employees’ tax is 50% and must be taxed at a rate of 25% as the holder of the public office is not in standard employment.
2. Subsistence Allowance
- Employees’ tax must not be deducted from the subsistence allowance, regardless of whether the deemed amounts and/or prescribed periods are exceeded.
3. Travel Allowance
- Only 80% of the travel allowance awarded to an employee is subject to the deduction of the employee’s tax.
- A travel allowance that is based on the actual distance traveled for business purposes is not liable to employees’ tax but the full amount must be reflected on the IRP5 certificate.
- In a situation where the reimbursive allowance does not surpass the prescribed rate per kilometer and no other compensation is awarded to the employee, the amount is not liable to the employee’s tax but the full amount must be reflected on the IRP5 certificate under code 3703.
- Where the reimbursive allowance does not exceed the prescribed rate per kilometre but another compensation is granted to the employee, the amount is not subject to the employee’s tax but the full amount must be reflected on the IRP5 certificate under code 3702.
- Unemployment (UIF) benefits
- Alimony and Maintenance benefits
- Dividends received from a South African source
- Uniform Allowance
- Foreign pensions
- Workmen’s compensation benefits
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Types of Tax in South Africa
1. Income Tax: This is imposed on the income and profits of individuals, companies, and trusts.
It also refers to a type of tax that governments impose on the income acquired by businesses and individuals within their jurisdiction.
2. Value Added Tax (VAT): This is charged on all goods and services at a standard VAT tax rate of 15%.
However, some goods and services are exempted from VAT, e.g. petrol, diesel, educational services, public transport, and so on.
3. Capital Gains Tax: This usually applies when an asset gets sold. An example is when a property is sold or company shares are acquired.
It is usually the profit made that is taxed, not the amount of money received after the sale of the asset.
4. Provisional Tax: Any individual or group who receives income other than remuneration is a provisional taxpayer.
It is a way of paying the income tax liability in advance, to ensure that the taxpayer does not have a huge tax debt on assessment.
5. PAYE (Pay As You Earn): When a company employs personnel, a certain amount of tax is deducted from the employees’ salaries.
The advantage of this is that it helps to settle a year’s tax liability in over 12 months, instead of having to pay a huge sum at one time.
6.Transfer Duty: This is owed by an individual when they obtain assets at progressive marginal rates between 0% and 13%.
This type of tax is usually payable within 6 months from the date of obtainment.
7. Customs And Excise Taxes: Customs duties are charged on imported goods to help generate revenue and protect the local market.
Excise duties and levies are usually charged on products such as petroleum, alcohol, electronic equipment, cosmetics, and so on.
8. Donations Tax: Donations tax is expected on the entire value of the property sold, whether directly or indirectly, by a resident through donation.
9. Turnover Tax: This is a simplified tax system only available to sole proprietors, partnerships, companies, or close corporations with a “qualifying turnover” of below R1m per year.
These types of entities are called micro businesses.
10. Dividend Tax: This is a tax on beneficial owners when dividends are paid to them.
It is a tax imposed by a jurisdiction on dividends paid by a corporation to its shareholders.
As we’ve established so far, allowances are granted by employers to either provide motivation or relief for employees, and there are instances where these allowances are either taxable or non-taxable.
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