What can I Claim Back from SARS as a Business or Individual?
December 6, 2023 | by SASSA Admin
Tax legislation in South Africa allows taxpayers to claim certain expenses against their income. Whether you’re a business owner or an individual, understanding what expenses you can claim back from the South African Revenue Service (SARS) can help you reduce your tax liability and maximize your deductions.
When it comes to claiming expenses, the type of income you receive determines the eligible deductions. For individuals, some of the expenses that can be claimed include pension fund contributions, retirement annuity fund contributions, legal costs under certain circumstances, wear-and-tear on certain assets, and more. Commission earners, holders of public office, property owners earning rental income, and those involved in a trade have additional expenses they can claim.
In this article, we will explore the various types of expenses that can be claimed back from SARS, whether you’re a business or an individual. From business expenses to tax deductions, we will help you navigate SARS regulations and make the most of your eligible deductions.
Key Takeaways:
- Understanding the expenses you can claim back from SARS can help reduce your tax liability.
- Individuals can claim expenses such as pension fund contributions, legal costs, and wear-and-tear on assets.
- Commission earners, property owners, and individuals involved in a trade have additional expenses they can claim.
- Business start-up expenses, entertainment expenses, and education expenses can also be claimed as deductions.
- Tracking business expenses and maintaining accurate records is crucial for maximizing deductions.
Expenses for Salary Earners, Property Owners, and Individuals in a Trade
As a salary earner, property owner, or individual involved in a trade, you may be eligible to claim certain expenses and deductions to reduce your tax liability. Understanding the expenses that qualify can help you maximize your deductions and potentially save money. Here are some key expenses you should be aware of:
Salary Earners
If you receive certain allowances such as travel or car allowances, or taxable subsistence allowances, it is important to know that you can claim these allowances as expenses. By doing so, you can reduce your taxable income and potentially receive a larger tax refund. Keep track of these allowances and ensure you have the necessary documentation to support your claims.
Property Owners
If you earn rental income from properties you own, you can claim various expenses related to the property. These expenses may include repairs and maintenance, insurance, and rates and taxes. By deducting these expenses, you can offset your rental income and potentially reduce your tax liability. Make sure to keep detailed records and receipts for all expenses related to your rental properties.
Individuals in a Trade
If you are involved in a trade, such as a sole proprietorship, partnership, or farming, you can claim a range of expenses directly related to the production of your income. These expenses can include material and equipment costs, employee costs, rent, office supplies, phone costs, travel and transport, marketing and advertising costs, and utilities. Keeping accurate records and receipts for these expenses is crucial to ensure you can claim them as deductions.
| Expense | Description |
|---|---|
| Material and Equipment Costs | Costs associated with purchasing materials and equipment for your trade. |
| Employee Costs | Salaries, wages, and benefits paid to your employees. |
| Rent | Cost of renting a business premises. |
| Office Supplies | Cost of purchasing supplies such as stationery and printer ink. |
| Phone Costs | Cost of business-related phone calls and data usage. |
| Travel and Transport | Cost of business-related travel and transportation. |
| Marketing and Advertising Costs | Cost of marketing and advertising your products or services. |
| Utilities | Cost of utilities such as electricity, water, and internet. |
By understanding and claiming these eligible expenses, you can potentially reduce your taxable income and save money when it comes to tax season. Make sure to keep accurate records, consult with a tax professional if needed, and take advantage of all the deductions available to you.
Capital Expenses and Education Expenses
When it comes to claiming deductions on your taxes, it’s important to understand which expenses are eligible. In this section, we will explore two types of deductible expenses: capital expenses and education expenses.
Capital Expenses
Capital expenses are major purchases that are intended for long-term use in your business. These expenses are considered investments in your business and can be deducted from your taxable income. Some examples of capital expenses include:
- Purchasing equipment or machinery
- Acquiring business vehicles
- Renovating your business premises
By deducting these capital expenses, you can reduce your overall tax liability and potentially increase your cash flow. It’s important to keep detailed records and receipts of these expenses to support your deductions.
Education Expenses
Education is a vital component of running a successful business. Fortunately, certain education expenses can also be claimed as tax deductions. These expenses must directly relate to operating your business and can include:
- Courses or workshops that enhance your business skills
- Training programs for you or your staff
By investing in education, you are investing in the growth and development of your business. Be sure to keep accurate records of these expenses and consult with a tax professional to ensure you are maximizing your deductions.
Summary
In this section, we covered two types of deductible expenses: capital expenses and education expenses. Capital expenses include major purchases for your business, such as equipment and renovation costs, while education expenses encompass courses and training programs directly related to your business. By understanding and properly documenting these expenses, you can lower your tax liability and keep your business finances in order.
Entertainment Expenses and Business Start-up Expenses
When it comes to running a business, there are certain expenses that can be claimed as tax deductions. Two key categories to consider are entertainment expenses and business start-up expenses.
Entertainment expenses are costs incurred while entertaining clients, such as meals, drinks, live entertainment, and venue hire. These expenses can be claimed as tax deductions, but it’s important to note that they must be directly related to pursuing business. For example, taking a client out for lunch to discuss potential business opportunities would qualify as a deductible expense.
On the other hand, business start-up expenses refer to the costs incurred before the first year of trade. This includes expenses like purchasing equipment, setting up an office space, or conducting market research. These expenses can also be claimed as tax deductions, allowing you to offset the initial costs of starting your business.
Table: Examples of Entertainment Expenses
| Expense | Description |
|---|---|
| Meals | The cost of meals during business meetings or client entertainment. |
| Drinks | The cost of beverages provided during client meetings or social events. |
| Live Entertainment | The cost of entertainment, such as concert tickets or theater performances, when entertaining clients. |
| Venue Hire | The cost of renting a venue for hosting client events or conferences. |
By properly tracking and documenting your entertainment expenses and business start-up expenses, you’ll be able to claim these deductions and reduce your overall tax liability. Be sure to keep detailed records and consult with a tax professional to ensure you’re maximizing your tax deductions while staying compliant with the tax laws in South Africa.
Net Operating Losses and Turnover Tax
If your business has incurred net operating losses in previous years, you can take advantage of this by carrying those losses forward as deductions. This means that you can subtract the losses from your current taxable income, potentially reducing your tax liability. Net operating losses can occur when your business expenses exceed your income, resulting in a negative net income. By utilizing these losses, you can offset future profits and reduce your overall tax burden.
Moreover, if your business has an annual turnover of less than R1 million, you have the option to pay turnover tax instead of the standard small business income tax. Turnover tax simplifies the tax process for small businesses by automatically estimating business expenses when calculating taxable income. This saves you time and effort in tracking and reporting tax-deductible expenses. However, it’s important to note that turnover tax may not always be the most advantageous option, so it’s advisable to consult with a tax professional to determine the best approach for your business.
Net Operating Losses
To illustrate the potential benefit of net operating losses, let’s consider the following example:
| Year | Revenue | Expenses | Net Income/Loss |
|---|---|---|---|
| Year 1 | R500,000 | R600,000 | -R100,000 |
| Year 2 | R800,000 | R700,000 | R100,000 |
In the above example, the business incurred a net operating loss of R100,000 in Year 1. Instead of being taxed on the R500,000 revenue in Year 2, the business can offset the previous year’s loss and only pay taxes on the R100,000 net income. This results in a significant tax reduction and more favorable financial outcome for the business.
By leveraging net operating losses and considering the option of turnover tax, you can maximize deductions, reduce your tax liability, and effectively manage your business’s financial position.
Staying on Top of Business Expenses
Tracking your business expenses is essential for effective financial management. By keeping accurate records of your expenses, you can ensure that you have all the necessary information for tax preparation and maximize your deductions, ultimately reducing your tax liability.
To simplify the process, consider using accounting software like QuickBooks. With QuickBooks, you can easily track your expenses and income, generate reports, and stay organized throughout the year. This will save you time and effort when it comes to tax season.
Make it a habit to regularly review and categorize your expenses. This will help you identify any potential deductions and ensure that you are claiming all eligible expenses. Keep all receipts and invoices organized, either by using a digital filing system or physical folders, so that you have easy access to them when needed.
Remember, accurate record-keeping is key. By staying on top of your business expenses, you can maintain financial control, make informed decisions, and streamline your tax preparation process.
FAQ
What expenses can I claim back from SARS as a business or individual?
You can claim expenses such as pension fund contributions, retirement annuity fund contributions, provident fund contributions (from 1 March 2016), legal costs under certain circumstances, wear-and-tear on certain assets, donations to approved bodies, repayable amounts received for services rendered, and bad and doubtful debts related to employment. Commission earners, holders of public office, property owners earning rental income, and individuals involved in a trade can also claim certain expenses.
What expenses can salary earners, property owners, and individuals in a trade claim?
Salary earners who receive certain allowances, such as travel or car allowances or taxable subsistence allowances, can claim those allowances as expenses. Property owners earning rental income can claim expenses related to the property, such as repairs and maintenance, insurance, and rates and taxes. Individuals involved in a trade, such as sole proprietors, partnerships, and farmers, can claim expenses directly related to the production of their income, including material and equipment costs, employee costs, rent, office supplies, phone costs, travel and transport, marketing and advertising costs, and utilities.
Can I claim capital expenses and education expenses?
Yes, capital expenses refer to major purchases intended for long-term use in the business, such as equipment, machinery, business vehicles, and renovation costs. These expenses can be claimed as deductions. Education expenses that directly relate to operating the business, whether for the business owner or staff, can also be deducted. This includes the cost of courses, workshops, and training programs.
Are entertainment expenses and business start-up expenses tax-deductible?
Entertainment expenses incurred while entertaining clients, such as meals, drinks, live entertainment, and venue hire, can be claimed as tax deductions. However, the expenses must be directly related to pursuing business. Business start-up expenses, incurred before the first year of trade, can also be claimed. For example, if you purchased equipment for your business a few months before starting to trade, you can include it as a tax-deductible business expense.
What are net operating losses and turnover tax?
Net operating losses incurred in previous years can be carried forward as deductions. This means that if your business had losses in previous years, you can deduct those losses from your current taxable income. Additionally, businesses with an annual turnover of less than R1 million can choose to pay turnover tax instead of standard small business income tax. Turnover tax simplifies the tax process for small businesses and automatically estimates business expenses when calculating taxable income. This reduces the need for tracking and reporting tax-deductible expenses.
How can I stay on top of my business expenses?
To effectively manage your business finances, it is crucial to track your expenses regularly and maintain accurate records. Using accounting software like QuickBooks can simplify this process by allowing you to track expenses and income, generate reports, and ensure you have all the necessary information for tax preparation. By staying on top of your business expenses, you can maximize deductions and reduce your tax liability.
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