Tax question on interest income from fixed deposits.

[SteriStumpi]

I was reading through the SARS site and tax guide and saw the below for tax on interest income and exemptions. I was hoping there was someone on Carb who possibly knew what the answers to my questions were below. Apologies if they are basic but appreciate if anyone knew what they were.

"Interest exemptions
• Interest from a South African source, earned by any natural person under 65 years of age, up to R23 800 per annum, and persons 65 and older, up to R34 500 per annum, is exempt from income tax.
• Interest earned by non-residents, who are physically absent from South Africa for at least 182 days during the 12 month period, before the interest accrues and the interest bearing debt is not effectively connected to a fixed place of business in South Africa, is exempt from income tax."

Questions:

1) On the first point, If the interest income is over R23.8k I presume it gets added to your regular income tax rate? - hypothetically, If you don't have any other taxable income do you still get the R87,300 income tax threshold for those under 65? So the R23,8k and R87.3K per annum exemptions if the interest income is your only source of income?

2) I'm not entirely sure what the second point means, what type of interest is not connected to a fixed place of business? (just thinking hypothetically if I'm out of SA, what this would mean for say a fixed deposit I have at FNB/Standard Bank - I would think just the normal treatment of it as in point 1, but then I'm not sure about their second point what this means)

 

[Dom]

I was reading through the SARS site and tax guide and saw the below for tax on interest income and exemptions. I was hoping there was someone on Carb who possibly knew what the answers to my questions were below. Apologies if they are basic but appreciate if anyone knew what they were.

"Interest exemptions
• Interest from a South African source, earned by any natural person under 65 years of age, up to R23 800 per annum, and persons 65 and older, up to R34 500 per annum, is exempt from income tax.
• Interest earned by non-residents, who are physically absent from South Africa for at least 182 days during the 12 month period, before the interest accrues and the interest bearing debt is not effectively connected to a fixed place of business in South Africa, is exempt from income tax."

Questions:

1) On the first point, If the interest income is over R23.8k I presume it gets added to your regular income tax rate? - hypothetically, If you don't have any other taxable income do you still get the R87,300 income tax threshold for those under 65? So the R23,8k and R87.3K per annum exemptions if the interest income is your only source of income?

2) I'm not entirely sure what the second point means, what type of interest is not connected to a fixed place of business? (just thinking hypothetically if I'm out of SA, what this would mean for say a fixed deposit I have at FNB/Standard Bank - I would think just the normal treatment of it as in point 1, but then I'm not sure about their second point what this means)

Just to start off - you need to declare all sources of interest income on your annual SARS return either way (disclosure is better than them mercilessly bumming your for not doing so).

1) I get your thinking, but no. The interest income and income tax exemptions ae seen as separate and cannot be combined - the second that one of them can be seen as consistent + large enough to be an income source, it will become so. SARS is the best functioning governmental organisation and is incredibly thorough with their classifications of exemptions + taxable sources - as mentioned before don't murk the water as SARS are not forgiving on much at all.

2) This is relating to tax residency & tax rules for businesses in line with tax agreements between countries - my advice, read it word by word, if it doesn't apply frm the start you don't need to be concerned.

Tax wording + legislation can be boring but is also geared towards laymen and as such is so abstract that it can be deceiving on things like this.

For interest sake, this is not relating to tax free investments, a type of investment or crypto (please not this one)?

 

[SteriStumpi]

Just to start off - you need to declare all sources of interest income on your annual SARS return either way (disclosure is better than them mercilessly bumming your for not doing so).

1) I get your thinking, but no. The interest income and income tax exemptions ae seen as separate and cannot be combined - the second that one of them can be seen as consistent + large enough to be an income source, it will become so. SARS is the best functioning governmental organisation and is incredibly thorough with their classifications of exemptions + taxable sources - as mentioned before don't murk the water as SARS are not forgiving on much at all.

2) This is relating to tax residency & tax rules for businesses in line with tax agreements between countries - my advice, read it word by word, if it doesn't apply frm the start you don't need to be concerned.

Tax wording + legislation can be boring but is also geared towards laymen and as such is so abstract that it can be deceiving on things like this.

For interest sake, this is not relating to tax free investments, a type of investment or crypto (please not this one)?

Thanks for the information, it is really interesting. I'm more at the planning stages about what to do for the future with savings and investing as I started working not too long ago, but have declared all information in the previous tax return.

1) Do you perhaps know what the % tax is on the interest income above the annual R23,800 exemption?

2) The second bullet point was on their site and mentioned in the individual tax income brochure pdf again - so I'm not sure why they would put this into the individual tax guide pdf for individuals if it's relating to businesses. But thanks for the clarification.

The tax wording is quite opaque, but I've been trying to read up on things so that I know what would be efficient for the future. Like the RA's and things.

Nope, the post wasn't related to those types of tax-free investments/crypto etc. But just the bog-standard fixed deposits at a bank. I did invest in the tax-free investment account at the bank which is the r36k per year allocation.

Thanks again for the information, much appreciated.

 

[ThatGuyJD]

Thanks for the information, it is really interesting. I'm more at the planning stages about what to do for the future with savings and investing as I started working not too long ago, but have declared all information in the previous tax return.

1) Do you perhaps know what the % tax is on the interest income above the annual R23,800 exemption?

2) The second bullet point was on their site and mentioned in the individual tax income brochure pdf again - so I'm not sure why they would put this into the individual tax guide pdf for individuals if it's relating to businesses. But thanks for the clarification.

The tax wording is quite opaque, but I've been trying to read up on things so that I know what would be efficient for the future. Like the RA's and things.

Nope, the post wasn't related to those types of tax-free investments/crypto etc. But just the bog-standard fixed deposits at a bank. I did invest in the tax-free investment account at the bank which is the r36k per year allocation.

Thanks again for the information, much appreciated.

Side note point 2 does not only apply to businesses but "tax residency". If you live here and work here this section very likely won't apply to you.

Back to point 1. SARS requires you to declare all income, there are separate source codes for different types of income. Tax free investment interest and the standard interest you receive are two different types of income each with their own source codes. The interest forms part of your income, then the 23800 exemption is applied to it but is is limited to the amount of interest received. So if you are receiving more interest than the exemption it will just form art of your normal income and be taxed as per the tax tables.

Depending on your financial situation and how many sources of income you have and the amount of income received said sources it might be worthwhile to consult with a trusted tax planner. @Dom might have further thoughts on this comment.

Although the tax laws are somewhat understandable they are also complicated and there's lot of them that can catch one out.

P.s although I have studied tax I am by no means an tax professional and the above does not constitue a tax opinion or financial advice.

 

[SteriStumpi]

Side note point 2 does not only apply to businesses but "tax residency". If you live here and work here this section very likely won't apply to you.

Back to point 1. SARS requires you to declare all income, there are separate source codes for different types of income. Tax free investment interest and the standard interest you receive are two different types of income each with their own source codes. The interest forms part of your income, then the 23800 exemption is applied to it but is is limited to the amount of interest received. So if you are receiving more interest than the exemption it will just form art of your normal income and be taxed as per the tax tables.

Depending on your financial situation and how many sources of income you have and the amount of income received said sources it might be worthwhile to consult with a trusted tax planner. @Dom might have further thoughts on this comment.

Although the tax laws are somewhat understandable they are also complicated and there's lot of them that can catch one out.

P.s although I have studied tax I am by no means an tax professional and the above does not constitue a tax opinion or financial advice.

Thanks for the information - much appreciated. I guess that's a good suggestion to reach out to a tax planner for a consultation.

I wanted to plan for the future and make sure I do things in a tax-efficient manner, using all tools that the government has made provisions for in a compliant manner. I can see that not being efficient in savings and investments can be quite costly in the long term.

Do you perhaps have any suggestions on a good tax planner that I could use? I just need to ask questions and get advice (I'm not a high-net-worth individual, so there wouldn't be anything tangible to do now but I would like to plan how to save and invest for the future).

 

[Dom]

Thanks for the information, it is really interesting. I'm more at the planning stages about what to do for the future with savings and investing as I started working not too long ago, but have declared all information in the previous tax return.

1) Do you perhaps know what the % tax is on the interest income above the annual R23,800 exemption?

2) The second bullet point was on their site and mentioned in the individual tax income brochure pdf again - so I'm not sure why they would put this into the individual tax guide pdf for individuals if it's relating to businesses. But thanks for the clarification.

The tax wording is quite opaque, but I've been trying to read up on things so that I know what would be efficient for the future. Like the RA's and things.

Nope, the post wasn't related to those types of tax-free investments/crypto etc. But just the bog-standard fixed deposits at a bank. I did invest in the tax-free investment account at the bank which is the r36k per year allocation.

Thanks again for the information, much appreciated.

I am not sure on the tax rate for interest - Google is not being too helpful & sifting through SARS is not the most fun. A speculative guess would be within 12% to 15% but no idea of the brackets.

My pleasure

 

[Dom]

Side note point 2 does not only apply to businesses but "tax residency". If you live here and work here this section very likely won't apply to you.

Back to point 1. SARS requires you to declare all income, there are separate source codes for different types of income. Tax free investment interest and the standard interest you receive are two different types of income each with their own source codes. The interest forms part of your income, then the 23800 exemption is applied to it but is is limited to the amount of interest received. So if you are receiving more interest than the exemption it will just form art of your normal income and be taxed as per the tax tables.

Depending on your financial situation and how many sources of income you have and the amount of income received said sources it might be worthwhile to consult with a trusted tax planner. @Dom might have further thoughts on this comment.

Although the tax laws are somewhat understandable they are also complicated and there's lot of them that can catch one out.

P.s although I have studied tax I am by no means an tax professional and the above does not constitue a tax opinion or financial advice.

Agree on consulting a tax practitioner or planner (I am also not qualified and this is merely learnt + observed knowledge) for more complex tax matters - a lot of them are very good at minimising taxable income nd maximising taxable deductions.

 

[ThatGuyJD]

Do you perhaps have any suggestions on a good tax planner that I could use? I just need to ask questions and get advice (I'm not a high-net-worth individual, so there wouldn't be anything tangible to do now but I would like to plan how to save and invest for the future).

No, unfortunately not.

 

[Dom]

Agree on consulting a tax practitioner or planner (I am also not qualified and this is merely learnt + observed knowledge) for more complex tax matters - a lot of them are very good at minimising taxable income nd maximising taxable deductions.

My old man uses Arnold Accounting.