I don’t know many people that enjoy submitting their tax return. Having said that, I know many people who like the results of their labour. There are 3 types of results when it comes to tax returns. 1. You must pay a certain amount to SARS. 2. You receive an amount back in the form of a refund. Or 3. A “nil result” meaning you owe nothing and you are owed nothing.
What’s the Point of Tax Returns?
All countries run on money. As with any business, income is critical. No income no spending – not a great plan for a busines (or country). South Africa relies heavily on the income of personal tax. It forms the bulk of the income. Tax season which runs from July to November annually is SARS biggest income months of the year.
The point? You pay taxes in order to run the country.
1. Refunds.
That is great knowing that but i got a refund. How does that work? You may have got a refund but many individuals do not and have to pay in a fairly substantial amount of money. There are a number of reasons for this, but another time.
A refund happens when the amount you have paid through the year exceeds the amount due after all the amounts have been claimed. Lets take a simple example. Joe is an employee of a company and is paid the amount of R 10 000 monthly.* He pays R 1 000 PAYE (personal tax) every month. He receives R 9 000 in his bank account as a result of the deduction. Joe is the principal member of a medical and has one dependent.
In his tax return, Joe has paid R 12 000 personal tax through the year. As tax payer, Joe is given a medical tax credit for himself of R 300 and the dependent of R 200.* This amount is per month. The total amount for the year is R 6 000. The net result of the claims and the tax paid, is that Joe has over paid by R 6 000. SARS will refund Joe this amount, once all the numbers have been checked and finalised.
Because of claims made, it results in the tax payer “over paying” and SARS are happy to pay this back to tax payers once all the submissions have been received and verified.
2. Paying SARS
This is the result that nobody wants because nobody likes paying tax, including me! This result comes from the taxpayer not “paying enough” tax according to the income that they earned throughout the tax year. This is not very common but does happen.
This situation often arises in cases where the person does not work for a company and also if they earn income from multiple sources.
3. Nil Result.
This is the next best option to a refund. You don’t owe SARS anything and they, in return, do not need to pay you anything either. This situation is when the taxpayer is paid a certain income for the tax year but pays the correct amount of tax. This will only happen if the tax payer does not claim any deductions.
*Amounts are fictitious and are used for illustration purposes. Please consult with your accountant or SARS directly to obtain actual figures as they change annually. UIF has been omitted for illustration purposes.
This article was updated in September of 2021.