It’s the end of the month and you have been waiting to get that SMS from your bank saying “money deposited into account” – Whoop whoop it’s payday. Every month this happens and you have noticed that you always seem to get an odd number. If you do a quick calculation you will notice your personal tax is a lot lower than you might expect.
For instance, if you are earning R460 000 and fall into the 36% tax bracket you do not pay R165 600 in tax (36% of R460 000). Why is this? We plan on explaining it. Perhaps you are just curious or you are interested how much the tax man is really taking off your gross salary. Whatever the reason, the article below will tell you how you go about calculating personal tax.
Calculating personal tax
There is often a big degree of resistance to understanding tax and especially the calculation thereof. Fortunately for us, SARS has made the calculation relatively simple.
By using this link, you will be on the SARS Rates of Tax for Individuals page. This lists the current and all the previous years tax rates with the latest one being shown below. It’s the rates for the 2019 tax year (1 March 2018 – 28 February 2019).
|Taxable income (R)||Rates of tax (R)|
|0 – 195 850||18% of taxable income|
|195 851 – 305 850||35 253 + 26% of taxable income above 195 850|
|305 851 – 423 300||63 853 + 31% of taxable income above 305 850|
|423 301 – 555 600||100 263 + 36% of taxable income above 423 300|
|555 601 – 708 310||147 891 + 39% of taxable income above 555 600|
|708 311 – 1 500 000||207 448 + 41% of taxable income above 708 310|
|1 500 001 and above||532 041 + 45% of taxable income above 1 500 000|
Don’t be put off by all the numbers. Unlocking the calculation behind your tax return lies in this simple table (once we unpack it).
Breaking down the rates table
The left column is the income bracket or the “tax bracket”. It will be your guide to which nominal tax rate you are paying.
Rates of tax
The column on the right is the actual tax calculation based on the bracket you are sitting in. The first rand-based figure indicated is the cumulative tax maximum of the bracket prior to your bracket. For example, if you are sitting in the 3rd row, which is the R 305 851 – R 423 300 bracket and show an amount of R 63 853 in the right column. This amount of R 63 853 is the total of the previous 2 brackets maximum. Lets work it out. The first bracket (R 0 – R 195 850) maximum is R 195 850, multiplied by 18% (R 195 850 x 18%) is equal to R 35 253 which is the base of the 2nd row bracket in the right column.
Now in the 2nd row, R 195 851 is our base less the maximum of R 305 850 (R 305 850 – R 195 850) is equal to an additional R 110 000. This amount multiplied by the applicable tax rate at 26% (R 110 000 x 26%) = R 28 600. Added to our previous calculation of R 35 253 (R 35 253 + R 28 600) we get a sum total of 63 853 which as you can see is the basis for the 3rd bracket which we are sitting in.
This calculation is indicative of the sliding scale phrase used around our individual tax and nominal versus effective tax which I will touch on later.
We understand the base of the figure presented in the 2nd column but now what? Our income is actually R 350 000 and not R 305 851. As was eluded to in the calculation before, to work out our tax we need to subtract our income off the base figure of the bracket. In this case it works out to R 350 000 – R 305 851 which gives us R 44 149. This amount multiplied by 31% giving us our sum of R 44 149 x 31% = R 13 686.
Finally, we can put it all together by adding this in to our base level. Our base of R 63 853 plus our calculated tax of R 13 686 gives us a total liability of R 77 539.
Nominal versus effective tax
The example above placed us in the 31% tax bracket. However, the result of R 77 539 on our total income works out to an effective tax rate of 22.15% (R 77 539 /R 350 000). This is way under our indicative tax bracket of 31%. And we all thought we were paying 31% flat tax right?
The 31% is our nominal tax payable where as the 22.15% is our effective tax.
The calculation is based on a sliding scale. This means you will always be taxed as per the previous brackets accumulating up until you get to your current bracket. Therefore, you will only pay the percentage on excess in that bracket.
A 45% tax payer will be taxed in every bracket from 18% until they reach their bracket of 45%. Only then will they be taxed on the excess at 45%.
I hope you have learnt a little about how your income tax is calculated. Look out for our income tax calculator coming soon!
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