General Tax queries

[Greg C]

Can you explain how this works exactly?

If his father charges him/the company R5 000 rent, it will have to be actually incurred in order to be able to deduct it.

So how does incurring rent and deducting it work out better then not paying rent at all?

I'm a little sleepy so might be missing something.

Not a problem m8.
Here it is and I will make it as lamen and as simple as possible without relating to much to mumble jumble the tax.

So here goes

The person in question will start and run a business - Business makes a profit every month
From this expenses are incurred in the running of his business that were specifically incurred due to some exclusions and inclusions according to the income tax act.
In this case the rent that he would hyperthetically be paying was for the premises that he uses for business use and would be used to reduce the income of the company as a general deduction so that the Taxable income he eventually has is less.

Why I suggested that he does pay the rent is because hes starting his business and for instance if his income is low for the first few months from the business the deduction of rent will help to reduce his tax far enough to pay as little as possible.

That was the only reason I really suggested paying it. Depending on the rent and what he wants to do he can ignore it.Without citing any paragraph from income tax just doing tax and that gives me a little shiver as I am not comfortable knowing that he doesnt pay rent and when he begins using his fathers/father inlaws place for business,SARS might feel as though there is a reduction in the rent that would be charegable ie(you arent charging rent because hes a family member) dont quote me on this I havnt found anything yet relating specifically to this scenario but my tax bones arent happy with him not paying any rent at all

 

[Pho3nix]

Hi Greg, thanks for the thread answered alot of questions I've had but here is one : I started working since Dec 2010 but I was below the tax threshold, from about September 2011 the company started deducting tax even though I was still below the threshold. In Jan this year I became "taxable". Now my question is when I submit my tax returns (around July), what will I need and will my IRP5 be sufficient for the past 6 months and I'll possibly get a refund on the tax that was deducted from last year? Hope I'm making sense.

 

[Greg C]

Hi Greg, thanks for the thread answered alot of questions I've had but here is one : I started working since Dec 2010 but I was below the tax threshold, from about September 2011 the company started deducting tax even though I was still below the threshold. In Jan this year I became "taxable". Now my question is when I submit my tax returns (around July), what will I need and will my IRP5 be sufficient for the past 6 months and I'll possibly get a refund on the tax that was deducted from last year? Hope I'm making sense.

Hello there good sir

Lets just create a nice timeline so I can make sure of facts

Dec 2010 (started work) _______________Sep 2011(tax deduction from company-below threshold) _______Jan 2012 became taxable(ie over the threshold due to possible pay adjustments).

To start off SARS will go on whatever they have been provided from sources such as Companies,funds and yourself.
It is for this reason that they put the obligation on YOU the taxpayer that whatever they choose for the end result to tax you on for you to prove and dispute it(contrary to popular belief SARS arent the devil) if you can prove that something was indeed incorrect or possibly is a sort of touchy feely tax they are infact lenient but lets get back to point and case.

IF your company was taxing you which they were during the period that you were earning under the threshold is something you will have to prove. You will have to communicate with SARS using the following to prove that you were in actual fact under the threshold.

Proof of employment at that company for the period in dispute
ID document
Tax number
Bank statement for the period in dispute
Original contract signed by you and your company stating your annual cost to company salary
Pay slips received.

All of this should be sufficient.Stipulate the reasoning for the dispute - ie Incorrect tax as under the threshold.
If SARS are on the ball there may be a chance that your efiling already has this into account and you will have tax needed to be in essence refunded,however for the period that you have been working from Jan 2012 this year until the filing ie July the taxable portion now that you are over the threshold may be reduced by the possible refund that is currently in dispute

Some things to note...DO NOT WAIT UNTIL FILING.
AS your scenario has happened already and to some degree you can prove it with the right documentation, disclose this as ask SARS what they are expecting tax wise from you for the current tax year. Do the calculation possibly using the tables or even the sites that come with a calculator for tax ie old mutual from Jan 2012.

Hope all this helps,remember you want to avoid problems at that time as the longer the dispute goes on and IF you lose,there is penalties...avoid penalties and be proactive rather that reactive on your tax returns.

I hope all this helps relatively.
Now off you go to the Randburg SARS office stand in the queue and begin your query. I do not work for SARS i can only attempt to give you advice,it is their word that is law at the end of the day,but unless you question the law you become a follower and get no benefit.

Good luck

 

[KalMaverick]

Not a problem m8.
Here it is and I will make it as lamen and as simple as possible without relating to much to mumble jumble the tax.

So here goes

The person in question will start and run a business - Business makes a profit every month
From this expenses are incurred in the running of his business that were specifically incurred due to some exclusions and inclusions according to the income tax act.
In this case the rent that he would hyperthetically be paying was for the premises that he uses for business use and would be used to reduce the income of the company as a general deduction so that the Taxable income he eventually has is less.

Why I suggested that he does pay the rent is because hes starting his business and for instance if his income is low for the first few months from the business the deduction of rent will help to reduce his tax far enough to pay as little as possible.

That was the only reason I really suggested paying it. Depending on the rent and what he wants to do he can ignore it.Without citing any paragraph from income tax just doing tax and that gives me a little shiver as I am not comfortable knowing that he doesnt pay rent and when he begins using his fathers/father inlaws place for business,SARS might feel as though there is a reduction in the rent that would be charegable ie(you arent charging rent because hes a family member) dont quote me on this I havnt found anything yet relating specifically to this scenario but my tax bones arent happy with him not paying any rent at all

Okay correct me if I'm wrong as this is just a quick scenario because I still don't quite get it.

R100 000 (Taxable income) - R5 000 (Rent) = R95 000 taxable income * 28% = R26 600
R100 000 (Taxable income) - R0 (No rent) = R100 000 taxable income * 28% = R28 000

You would basically be incurring a cost of R5 000 in order to save R1 400 on your tax?

So are you saying he should hypothetically get "charged" for rent but never actually pay it? Or only physically pay the rent at a much later stage?

 

[Alton Turner Blackwood]

Not really a tax question per se, more something I was thinking of should I start my own business.

Can I "employ" one of my kids in my small business and pay them a salary? She being 5 years old and me actually withdrawing that money from her account to pay my personal bills is, of course out of the question

 

[KalMaverick]

Not really a tax question per se, more something I was thinking of should I start my own business.

Can I "employ" one of my kids in my small business and pay them a salary? She being 5 years old and me actually withdrawing that money from her account to pay my personal bills is, of course out of the question

Mmm doubt it. If I'm not mistaken it's against the law for a person under 15 to "work".

 

[Greg C]

Okay correct me if I'm wrong as this is just a quick scenario because I still don't quite get it.

R100 000 (Taxable income) - R5 000 (Rent) = R95 000 taxable income * 28% = R26 600
R100 000 (Taxable income) - R0 (No rent) = R100 000 taxable income * 28% = R28 000

You would basically be incurring a cost of R5 000 in order to save R1 400 on your tax?

So are you saying he should hypothetically get "charged" for rent but never actually pay it? Or only physically pay the rent at a much later stage?

Love how you brought numbers as I didnt want to incase people on the forum didnt like anyway,lets carry on anyway

This
So are you saying he should hypothetically get "charged" for rent but never actually pay it? Or only physically pay the rent at a much later stage?[/QUOTE]

I said none of this.

This
"You would basically be incurring a cost of R5 000 in order to save R1 400 on your tax?"
Is one of the points I am referring lets use some numbers shall we

Scenario one
1) Does badly in a month and only makes 10 000
Pay rent= 10 000-R5000 = 5000 x 28% = 1400 tax liability
Dont pay rent= 10 000 - 0 =10 000 x 28% = 2800 tax liability

This is exactly what you had but I leant it towards specifically that if he has a bad month when he starts his business he makes a decent saving on his overall tax liability

Now that we have clarified that we are both basically saying the same thing in regards to this...let me expand what I have been also trying to say

By not paying the relevent rent for his business there are possible hitches and or problems he may experience with SARS in the future using the word MAYBE

By running his business not paying rent atall and claiming it back,later on the company moves/expands possibly to a new area or premises where the favourable conditions arent so favourable and RENT is a necessity.
SARS will ask you are paying rent now and you would like to reduce your tax but you have been running your company for a few months/years...What has changed and why...and so a cycle of explanations open and you need to say to SARS the real reason was that a family member was allowing you free access for business purposes.
You see where I am going with this?

And 2ndly logic(ignoring tax for a second)says if i make money and i dont have expenses I make more money...
This is correct but if you add tax to this THE MORE YOU EARN the more you pay...if you can reduce what you earn LEGALLY according to tax we are PREVENTING paying more.

Hope this helps m8 and clears things up.We were thinking the same line but I had extras I needed to highlight so it is clear to you.Remember this is a TAX section.

 

[Alton Turner Blackwood]

Mmm doubt it. If I'm not mistaken it's against the law for a person under 15 to "work".

Dammit

 

[Greg C]

Mmm doubt it. If I'm not mistaken it's against the law for a person under 15 to "work".

Oh How i enjoyed attempting to think of ways to jinx or bypass the tax system.The whole of tax is based on people like you(not being rude) that were smart enough to see gaps in the legislation and took advantage (hence in tax constant inclusions and exclusions rules,ring fencing,eliminations of what tax relates where) it gets tighter and tighter with people attempting to squeeze the system...anyway I digress

Going with just the face of it NOT IF HELL FROZE OVER,would this be legal hehe no offense ofcourse.
1) You are paying a 5 yr old(connected person) a salary...what has the 5 yr old rendered to earn that salary assuming 5 yr olds were legally allowed to work?
2)You are attempting the illegal TAX EVASION. So heavy penalties if you tried this.
3)your entire purpose was to avoid tax,to the benefit of yourself and the detriment of the receiver of revenue.

Anyway its a nice thought but I have said it once and I will say it again...
There are only two things in life that are certain...DEATH and TAXES.

Loved the question m8 thanks for posting it...good luck with the 5 yr old

 

[Alton Turner Blackwood]

Oh How i enjoyed attempting to think of ways to jinx or bypass the tax system.The whole of tax is based on people like you(not being rude) that were smart enough to see gaps in the legislation and took advantage (hence in tax constant inclusions and exclusions rules,ring fencing,eliminations of what tax relates where) it gets tighter and tighter with people attempting to squeeze the system...anyway I digress

Going with just the face of it NOT IF HELL FROZE OVER,would this be legal hehe no offense ofcourse.
1) You are paying a 5 yr old(connected person) a salary...what has the 5 yr old rendered to earn that salary assuming 5 yr olds were legally allowed to work?
2)You are attempting the illegal TAX EVASION. So heavy penalties if you tried this.
3)your entire purpose was to avoid tax,to the benefit of yourself and the detriment of the receiver of revenue.

Anyway its a nice thought but I have said it once and I will say it again...
There are only two things in life that are certain...DEATH and TAXES.

Loved the question m8 thanks for posting it...good luck with the 5 yr old

Hahaha, was more a tongue-in-cheek question than anything else (since you looked eager to answer questions)

 

[Greg C]

Hehe damn you for finding my weakness !!!

 

[KalMaverick]

@Greg C

I think I see what you're trying to say, I also have tax as a subject but looking at this more from a cash flow perspective. So I agree with you, but only in the short term.

Scenario one
1) Does badly in a month and only makes 10 000
Pay rent= 10 000-R5000 = 5000 x 28% = 1400 tax liability
Dont pay rent= 10 000 - 0 =10 000 x 28% = 2800 tax liability

I understand that, but if he is physically paying his rent, he has a cash outflow of R6 400 (R5 000 + R1 400), leaving him with R3 600 cash.

If he doesn't pay rent at all. He has a cash outflow of R2 800 only, leaving him with R7 200 cash.

Granted in the first instance he doesn't actually have to pay the rent in the same month and so it would work out better, but he will eventually have to have a real cash outflow of R5 000. (Therefore it's a short term benefit only.)

I'm ignoring the consequences of not paying rent and the issues you might have with SARS as I don't have knowledge on that.

And 2ndly logic(ignoring tax for a second)says if i make money and i dont have expenses I make more money...
This is correct but if you add tax to this THE MORE YOU EARN the more you pay...if you can reduce what you earn LEGALLY according to tax we are PREVENTING paying more.

Correct, but that's going on the assumption your expenses are unavoidable.

Love how you brought numbers as I didnt want to incase people on the forum didnt like anyway,lets carry on anyway

I love the numbers

 

[gnomez]

Cant wait to do my tax returns !!! Need some extra cash

 

[Greg C]

@Greg C

I think I see what you're trying to say, I also have tax as a subject but looking at this more from a cash flow perspective. So I agree with you, but only in the short term.



I understand that, but if he is physically paying his rent, he has a cash outflow of R6 400 (R5 000 + R1 400), leaving him with R3 600 cash.

If he doesn't pay rent at all. He has a cash outflow of R2 800 only, leaving him with R7 200 cash.

Granted in the first instance he doesn't actually have to pay the rent in the same month and so it would work out better, but he will eventually have to have a real cash outflow of R5 000. (Therefore it's a short term benefit only.)

I'm ignoring the consequences of not paying rent and the issues you might have with SARS as I don't have knowledge on that.



Correct, but that's going on the assumption your expenses are unavoidable.



I love the numbers

Love the numbers as well.We seem to be both on the same side.I did financial sciences for my undergrad so I understand you cashflow issue but that is why I stated...Keep in mind this is a TAX thread generally as you can see by all the posts.

Leaving the management of cashflow and financial management decisions aside

Glad we are on the same par big man

NEXT!!! <<<<<

 

[RaFi]

Ok, I have questions, we have been arguing about this at work.

Is Lotto winnings taxable?

Also, how does fixed deposit tax work? Say I have a big amount (yeah, from the lotto) and want to live from it from month to month.

Just to confirm, I can give my parents a R100 000 a year without tax complications, but does this include both parents or can I give each one a R100 000?

 

[Stefanmuller]

Okay correct me if I'm wrong as this is just a quick scenario because I still don't quite get it.

R100 000 (Taxable income) - R5 000 (Rent) = R95 000 taxable income * 28% = R26 600
R100 000 (Taxable income) - R0 (No rent) = R100 000 taxable income * 28% = R28 000

You would basically be incurring a cost of R5 000 in order to save R1 400 on your tax?

So are you saying he should hypothetically get "charged" for rent but never actually pay it? Or only physically pay the rent at a much later stage?

Paying rent if you don't have to, is just stupid. You will be out of pocket with 72% of the rent if you end up making a profit, and the full amount if you end up making a loss. Granted this loss can be used against future income, but again only 28%. Plus your father has to include the rent in his income and will get taxes on it. The only time paying rent when you don't have makes sense is if you are making big profits with good cash flow and have tax problems, and the property is owned by yourself or by your trust. If owned by yourself, and still under bond, you can deduct a proportional amount of bond interest, rates, repairs and insurance AFT etc which may be more than the rent or if not you may still be taxed at a lower rate than 28%. Doing it in a trust is the best way as you can distribute the net profit (if any) to the beneficiaries.

I don't usually advise people to charge themselves rent for using their personal home as office when in their own name because the proportional expenses are usually very small and the saving is not worth it. Near in mind that the capital gain exclusion on your primary residence will also be decreased by the same proportion.

 

[KalMaverick]

Ok, I have questions, we have been arguing about this at work.

Is Lotto winnings taxable?

If I'm not mistaken before the winnings are paid out to you the tax is deducted, not too sure though.

Just to confirm, I can give my parents a R100 000 a year without tax complications, but does this include both parents or can I give each one a R100 000?

The R100 000 applies to you, so you can donate to whoever up to R100 000 in total before you start getting taxed. So no only one parent, or both R50 000 each.

 

[Greg C]

Paying rent if you don't have to, is just stupid. You will be out of pocket with 72% of the rent if you end up making a profit, and the full amount if you end up making a loss. Granted this loss can be used against future income, but again only 28%. Plus your father has to include the rent in his income and will get taxes on it. The only time paying rent when you don't have makes sense is if you are making big profits with good cash flow and have tax problems, and the property is owned by yourself or by your trust. If owned by yourself, and still under bond, you can deduct a proportional amount of bond interest, rates, repairs and insurance AFT etc which may be more than the rent or if not you may still be taxed at a lower rate than 28%. Doing it in a trust is the best way as you can distribute the net profit (if any) to the beneficiaries.

I don't usually advise people to charge themselves rent for using their personal home as office when in their own name because the proportional expenses are usually very small and the saving is not worth it. Near in mind that the capital gain exclusion on your primary residence will also be decreased by the same proportion.

Not very much wrong with much that you've said other than having a sort of impression that the net income paid from the trust wont be taxed which I am not sure you meant at all.

2ndly you just proved exactly what I was saying just by
Granted this loss can be used against future income

and this
The only time paying rent when you don't have makes sense is if you are making big profits with good cash flow and have tax problems

big profits is relative to the rent incurred. Everyone is going bananas over this which makes very little sense

Dont pay the rent- Increased income,increased tax as higher Taxable income.Higher short term income/cashflow
Pay rent-Reduce taxable income-pay less tax,possible for tax loss to offset against profits in a future periods

Keeping in mind once again IF he decides to continue not paying rent which by all means he can IM NOT G#D that if his business grows and he POTENTIALLY begins having tax concerns and decides to get charged rent or a new premises decides to charge rent without a choice...SARS may ask 'your company has been in existance for x amount of time and you didnt claim for rent as a general deduction but now you decide for this current tax assessment to do so...WHY?

The rest of what people are saying here is correct.Can we clear the air of this one...if this is the one that people are having problems with I hate to see farming income according to the rating formulas or something along those lines. Keep the questions coming

 

[Greg C]

If I'm not mistaken before the winnings are paid out to you the tax is deducted, not too sure though.



The R100 000 applies to you, so you can donate to whoever up to R100 000 in total before you start getting taxed. So no only one parent, or both R50 000 each.

Kal is correct. 100 000 donations exemption for a taxable year is 100 000 for an individual.You will get that,the folks will not.
The winnings will be taxed before they are paid out to you however money won through gamgbling ie montecasino(if you are not regarded as a professional gangbler etc.) is NOT taxable. Kind of makes sense why a lot of people try their hand at gambling if only they knew that with the same general savvy and research they can guarentee returns for themselves in the long run instead of making it big in the short .O well a fool and his money are easily parted

 

[Pho3nix]

Thanks Greg will take that advice to heart, is SARS open on a Saturday?

Hello there good sir

Lets just create a nice timeline so I can make sure of facts

Dec 2010 (started work) _______________Sep 2011(tax deduction from company-below threshold) _______Jan 2012 became taxable(ie over the threshold due to possible pay adjustments).

To start off SARS will go on whatever they have been provided from sources such as Companies,funds and yourself.
It is for this reason that they put the obligation on YOU the taxpayer that whatever they choose for the end result to tax you on for you to prove and dispute it(contrary to popular belief SARS arent the devil) if you can prove that something was indeed incorrect or possibly is a sort of touchy feely tax they are infact lenient but lets get back to point and case.

IF your company was taxing you which they were during the period that you were earning under the threshold is something you will have to prove. You will have to communicate with SARS using the following to prove that you were in actual fact under the threshold.

Proof of employment at that company for the period in dispute
ID document
Tax number
Bank statement for the period in dispute
Original contract signed by you and your company stating your annual cost to company salary
Pay slips received.

All of this should be sufficient.Stipulate the reasoning for the dispute - ie Incorrect tax as under the threshold.
If SARS are on the ball there may be a chance that your efiling already has this into account and you will have tax needed to be in essence refunded,however for the period that you have been working from Jan 2012 this year until the filing ie July the taxable portion now that you are over the threshold may be reduced by the possible refund that is currently in dispute

Some things to note...DO NOT WAIT UNTIL FILING.
AS your scenario has happened already and to some degree you can prove it with the right documentation, disclose this as ask SARS what they are expecting tax wise from you for the current tax year. Do the calculation possibly using the tables or even the sites that come with a calculator for tax ie old mutual from Jan 2012.

Hope all this helps,remember you want to avoid problems at that time as the longer the dispute goes on and IF you lose,there is penalties...avoid penalties and be proactive rather that reactive on your tax returns.

I hope all this helps relatively.
Now off you go to the Randburg SARS office stand in the queue and begin your query. I do not work for SARS i can only attempt to give you advice,it is their word that is law at the end of the day,but unless you question the law you become a follower and get no benefit.

Good luck