Taxpayer classifications for individuals


Taxpayer classifications for individuals

So many small business owners are unaware of how they are classified from a personal taxpayer perspective once they leave the world of permanent employment and become self-employed (aka – an entrepreneur who is either a sole proprietor or an individual earning income from a variety of sources).

An individual who is paid solely a salary from which PAYE and UIF are deducted is considered a non-provisional taxpayer. As you may have guessed, everyone else is then classified as a provisional taxpayer. SARS defines a provisional taxpayer as “any person who receives income (or to whom income accrues) other than remuneration.” Most salary earners are therefore not provisional taxpayers if they have no other sources of income other than their salary.

So how do you know which category you fall into and why does it even matter?

Firstly, it is important to know which category you fall into as the deadline for the submission of your individual income tax return is dependent on your classification. It is also important as it determines the level of tax related advice you may require before submitting your annual income tax return.

  1. A salaried non-provisional taxpayer has PAYE deducted off their monthly nett pay amount BEFORE their salary is paid over to them. This would generally mean that no additional tax should be due on submission of your annual individual income tax return. There are a variety of deductions which can be made when completing your income tax return on eFiling.  Making sure you account for all of these results in the most accurate and generally the most tax efficient position for the individual.
  • Business travel
  • Medical tax rebate
  • RA contributions made during the year
  • Tax-free savings made during the year
Each of these deductions listed above will need to be supported by the correct tax certificates or detailed supporting documents and depending on your individual circumstances, there may be other deductions which are also applicable to you. Getting sound advice on this before filing your annual income tax return will ensure that you are claiming all possible deductions and reducing your tax liability where possible.
  1. A provisional taxpayer is in essence anyone who has earned an income from which no PAYE was deducted.

Provisional tax calculations generally require some specialized tax knowledge to ensure that all amounts earned are correctly disclosed and that all possible deductions are considered in the final tax calculation.

No matter which personal tax classification you fall into, having a tax professional prepare or even just review your return before filing will result in the most accurate and tax efficient position for you as the individual.

PS: Be sure to only engage in the services of a registered tax practitioner if you are wanting professional assistance on anything tax related. SARS requires that all tax professionals offering any tax related services are registered as tax practitioners. All registered tax practitioners are issued a tax practitioner number which you are entitled to ask for if you are unsure of their registration status.

Yours in simplifying finance,