Understanding South African Taxation: A Detailed Guide for Individuals

Gross Income and Exclusions

SARS defines gross income as all amounts, in cash or otherwise, received or accrued during the tax year — unless specifically excluded. This generally includes salaries, wages, business profits, investment income, and fringe benefits.

Gross Income. This is basically your salary, annualised, and the reason why this is annualised is because of the tax tables — they are based on the annual figures, which include rebates as well. So when your employer calculates your tax payable from your monthly salary, they will use gross your salary up to an annualised figure, for example, if you earn a salary of R20,000 pm, to get the estimated tax to be deducted and paid over to SARS, they will multiply this monthly salary by 12 months, and plugin the applicable deductions on an annualised basis, and get an annual taxable income, and use the tax tables for the rebates and apply the tax rate based on the calculated taxable income, and then this will be divided by 12 to get the figure that's paid over to SARS for that month. The assumption here is you are going to be or have been earning the same amount every month for the whole year, and this is how we end up with the refunds at the end of the tax year, especially if you did not work for the full year.

What is Gross Income? (According to SARS)

SARS defines gross income as:

"All amounts, in cash or otherwise, received by or accrued to a taxpayer during a tax year, unless specifically excluded.”

In simpler terms: it’s everything you earn or gain in value, not just your salary, before taking off exclusions or deductions.

What’s Included in Gross Income?

1. Employment Income

   • Salaries

   • Wages

   • Bonuses

   • Overtime pay

   • Fringe benefits (e.g., company car, housing allowance, medical aid paid by employer)

✅ Example: If your employer pays R10,000 towards your medical aid, that is counted as part of your gross income.

2. Business/Trade Income

   • Profits from self-employment or side hustles

   • Freelance earnings

   • Consulting fees

✅ Example: You run a baking business from home and earn R50,000 profit — that profit is gross income.

3. Investment Income

   • Interest from bank accounts

   • Dividends from shares (local and foreign)

   • Rental income from property

   • Annuities

✅ Example: You earn R25,000 rental income from letting out a flat — that’s gross income.

4. Capital Amounts (in some cases)

   • Not all capital receipts are included, but some lump sums are taxed unless excluded.

   • E.g., severance packages, retirement withdrawals (unless falling within tax-free thresholds).

5. Other Benefits & Windfalls

   • Fringe benefits (non-cash perks from employers)

   • Amounts “in kind” — e.g., free accommodation provided by an employer

   • Some prizes or awards (depending on source)

✅ Example: Winning R5,000 in a work performance award counts as gross income.

⚠️ But lottery winnings are not taxable in South Africa (excluded).

What’s NOT Gross Income? (Exclusions)

Even if you receive money, some amounts are excluded from gross income, like:

• Certain insurance payouts

• Capital gain exclusions (first R40,000, or R2m on primary residence sale)

• Certain retirement lump sum portions

Quick Example of Gross Income Calculation

Imagine Nomsa has:

• Salary = R400,000

• Employer-paid medical aid = R24,000

• Rental income = R60,000

• Interest earned = R30,000

Gross Income = R514,000 (R400,000 + R24,000 + R60,000 + R30,000)
Then SARS will subtract exclusions (e.g., R23,800 interest exemption if under 65).

Common Gross Income Exclusions

Not everything you receive counts toward taxable income. Exclusions include:

• Certain capital amounts (like inheritances or specific lump-sum insurance payouts).

• Tax-free savings account proceeds.

• Certain scholarships or bursaries (within limits).

What Are Exclusions in South African Tax?

Exclusions are amounts included in your gross income that SARS specifically decides not to tax. So, even though they fall under “gross income,” you get to exclude (subtract) them before arriving at your taxable income.

Key Exclusions for Individuals

1. Capital Gains Exclusion

   • The first R40,000 of capital gains per tax year is excluded.

   • If you sell an asset (like shares or property), only gains above this are considered for tax.

✅ Example: You sell shares for a R45,000 profit.

1. R40,000 is excluded.

2. Only R5,000 is subject to Capital Gains Tax (CGT).

2. Primary Residence Exclusion (Capital Gain on Your Home)

   • If you sell your main home, the first R2 million of the capital gain is excluded from tax.

✅ Example: You sell your house and make a R1.5 million gain.

2. Entire R1.5m excluded → no CGT payable.

3. Certain Lump-Sum Payouts

   • Some retirement fund lump sums or severance benefits have tax-free portions (based on tax tables specifically for lump sums).

✅ Example: A retirement payout of R500,000 – the first R550,000 may be tax-free depending on lifetime usage.

4. Interest Income Exemption

   • Natural persons (individuals) under 65: the first R23,800 of local interest income is tax-free.

   • 65 and older: the first R34,500 is tax-free.

✅ Example: A 30-year-old earns R30,000 interest from a savings account.

4. R23,800 excluded.

5. Only R6,200 is taxable.

How Exclusions Fit Into the Tax Process

1. Start with Gross Income (everything you earned: salary, interest, capital gains, rental, etc.).

2. Subtract Exclusions (things SARS doesn’t tax, like the ones above).

3. What remains is Income → then you apply deductions (like retirement, medical aid, donations).

4. That gives you Taxable Income.

Income Tax Deductions for Individuals

South African tax law allows certain deductions that lower your taxable income:

1. Retirement Contributions

   • Pension Fund (usually through your employer).

   • Provident Fund (similar to pension but with different withdrawal rules).

   • Retirement Annuity (RA) – the “third option” you can take out privately (e.g., with Liberty, Allan Gray, etc.).
     ✅ Deductible up to 27.5% of taxable income, capped at R350,000 annually.

2. Medical Aid Contributions

   • You get a medical tax credit for your monthly contributions (a fixed amount per member).

   • Additional credits may apply if you have dependents or large out-of-pocket medical expenses.

3. Donations to Approved Public Benefit Organisations (PBOs)

   • You can deduct up to 10% of taxable income for donations to registered charities.

South African Tax Deductions and Credits Explained (with Examples)

When filing your tax return, SARS allows you to claim certain deductions and credits. These reduce your taxable income or lower the tax you owe. Here’s how the main ones work:

1. Retirement Contributions

Saving for retirement doesn’t just secure your future — it also gives you a tax benefit.

Types of Retirement Savings

• Pension Fund – Usually offered by your employer. Both you and your employer may contribute.

• Provident Fund – Similar to a pension fund, but traditionally allowed lump-sum withdrawals at retirement (recently aligned more closely to pensions under new rules).

• Retirement Annuity (RA) – A private retirement plan you can set up with providers like Liberty, Allan Gray, or Sanlam, even if your employer doesn’t offer a fund.

Tax Benefit

You can deduct up to 27.5% of your taxable income for contributions to retirement funds (pension, provident, and RA combined). The deduction is capped at R350,000 per year.

✅ Example:

• Thabo earns R400,000 a year.

• He contributes R50,000 to his employer’s pension fund and R20,000 to a private RA.

• Total contribution = R70,000.

• Since this is below 27.5% of his income (R110,000) and under R350,000, the full R70,000 is deductible.

• His taxable income drops from R400,000 to R330,000.

2. Medical Aid Contributions

Medical aid contributions give you tax credits, which directly reduce the amount of tax you pay (not just taxable income).

How It Works

• For 2025, the fixed monthly credits are:

  • R364 for the main member.

  • R364 for the first dependent (e.g., a spouse).

  • R246 for each additional dependent (e.g., children).

• Additional tax relief can apply if you have high out-of-pocket medical expenses and you or a dependent has a disability or is over 65.

✅ Example:

• Lerato belongs to a medical aid with her spouse and two children.

• Monthly tax credits = R364 (herself) + R364 (spouse) + 2 × R246 (children) = R1,220 per month.

• Annual credit = R1,220 × 12 = R14,640.

• This amount is subtracted directly from her tax payable.

3. Donations to Approved Public Benefit Organisations (PBOs)

If you donate to a registered charities (PBOs), SARS rewards you by allowing a deduction.

How It Works

• You can deduct up to 10% of your taxable income.

• Donations must be made to SARS-approved PBOs, and you must get a Section 18A certificate from the organisation to claim it.

✅ Example:

• Sipho earns R600,000 a year.

• He donates R50,000 to a registered children’s charity.

• 10% of R600,000 = R60,000, so the full R50,000 donation is deductible.

• His taxable income drops from R600,000 to R550,000.

Quick Recap Table

Deduction/Credit

Limit

Example Benefit

Retirement contributions (pension, provident, RA)

27.5% of taxable income, capped at R350,000

Reduce income from R400,000 → R330,000 if R70,000 contributed

Medical aid credits

Fixed monthly amount per member/dependent

R14,640 annual credit for family of 4

Donations to PBOs

Up to 10% of taxable income

R50,000 donation reduces taxable income from R600,000 → R550,000

Rebates

Once your tax liability is calculated, SARS applies rebates — these are automatic reductions based on age.

For 2025:

• Primary rebate (all taxpayers): R17,235

• Secondary rebate (65–74): R9,444

• Tertiary rebate (75+): R3,145

1. Primary Rebate (R17,235)

· Who qualifies? → All taxpayers, regardless of age.

· This rebate is automatically applied to everyone’s tax liability.

2. Secondary Rebate (R9,444)

· Who qualifies? → Taxpayers who are 65 years or older, but younger than 75.

· This rebate is given in addition to the primary rebate.

· Example: A 68-year-old taxpayer will receive both R17,235 + R9,444 in rebates.

3. Tertiary Rebate (R3,145)

· Who qualifies? → Taxpayers who are 75 years or older.

· This rebate is given in addition to the primary and secondary rebates.

· Example: A 77-year-old taxpayer will receive R17,235 + R9,444 + R3,145 in rebates.

✅ In summary:

· Under 65 → Only Primary rebate applies.

· 65 to 74 → Primary + Secondary rebates apply.

· 75 and older → Primary + Secondary + Tertiary rebates apply.

Tax Tables (2025 Tax Year)

Taxable Income (R) Rates of Tax

0 – 237,100 18% of taxable income

237,101 – 370,500 R42,678 + 26% of amount above R237,100

370,501 – 512,800 R77,362 + 31% of amount above R370,500

512,801 – 673,000 R121,475 + 36% of amount above R512,800

673,001 – 857,900 R179,147 + 39% of amount above R673,000

857,901 – 1,817,000 R251,258 + 41% of amount above R857,900

1,817,001 and above R644,489 + 45% of amount above R1,817,000

You can access the schematic representation of the above here.