The demise of the Standard Income Tax on Employees (SITE) may not be noticed by many — but the effects of its discontinuation will be felt by pensioners. Over the next two years, those earning R60 000 or less a year won’t enjoy the tax advantages they’ve had up until now.
The South African Revenue Service (Sars) first introduced SITE about 20 years ago to remove the large number of low-paid people from its records. People earning less than R60 000 (which included pensions and retirement annuities) didn’t have to file a tax return and were removed from the Sars register.
But now that Sars is computerised, it wants to reinstate the register and tax everyone on total income, which means pensioners will lose their tax advantages, according to Ron Warren, a tax expert and chairman of payroll software company NuQ.
“In the past, if a retired person had three pensions/annuities from, say, three different insurance companies, and each pension/annuity was less than R60 000 a year, they were effectively regarded as three separate persons, and paid tax on each pension/annuity separately,” he explains.
“This meant that they received the primary tax rebate three times, which reduced the total tax they paid considerably (the primary rebate at present is R10 260, plus an additional R5 675 = R15 935 if you are 65 or older).”
‘Easy to do’
Warren says that a person over 65 with multiple sources of income, all less than R60 000 per annum, had a great tax advantage, in that the tax payable will be at least R15 935 X 2 = R31 870 less (if the income was received from three sources) than they would pay if their income was totalled and tax calculated on the total.
“It is this tax advantage Sars now wants to remove, so that everybody will be taxed on the same basis in future,” he says.
However, to soften the blow, Warren says that the legislation provides a phasing-in process over the next two tax years. In the 2011/2012 tax year, Sars will calculate such persons’ taxes both the old way and the new way. The excess of the new over the old tax will then be reduced by two thirds. In the 2012 to 2013 tax year, that excess will be reduced by one-third. From then on (March 1 2013), there will be no reduction, and such people will be taxed the same as everybody else.
Warren says that this will have no effect on payrolls for the next two years. “Companies will continue calculating SITE up to the end of February 2013 and from March 2013. They will no longer have to calculate SITE, which will be extremely easy to do.”
He adds that affected employees or recipients of pensions/annuities had better start saving money for the extra tax they will have to pay on assessment. Sars will have a bit of extra work to do to change the way in which taxpayers affected will have their tax calculated, but Warren says that this will not be difficult.
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