As the year draws to a close, many South Africans are keen to understand where they fall within the tax brackets The tax bracket you fall into directly affects how much income tax you need to pay, so it’s important to stay informed and ensure your tax obligations are met.
The South African Revenue Service (SARS) adjusts tax brackets annually in line with inflation, ensuring fairness in the tax system. The latest tax brackets for individuals in South Africa for the 2024 tax year are available through SARS, providing clarity on how much tax will be levied on different income levels.
2024 Tax Brackets for Individuals
Income tax in South Africa is calculated progressively. This means that the higher your income, the higher the percentage of tax you will pay on each additional rand earned within specific income ranges. Below are the tax brackets for the 2024 tax year:
- Annual Income up to R237,100: 18% of taxable income
- Annual Income between R237,101 and R370,500: R42,678 + 26% of the taxable income over R237,100
- Annual Income between R370,501 and R512,800: R77,362 + 31% of taxable income over R370,500
- Annual Income between R512,801 and R673,000: R121,475 + 36% of taxable income over R512,800
- Annual Income between R673,001 and R857,900: R179,147 + 39% of taxable income over R673,000
- Annual Income between R857,901 and R1,817,000: R251,258 + 41% of taxable income over R857,900
- Annual Income over R1,817,001: R644,489 + 45% of taxable income over R1,817,000
How Your Taxable Income is Calculated
Your taxable income isn’t simply your total income for the year; deductions can lower your taxable income and potentially push you into a lower tax bracket. SARS allows various deductions and exemptions that can help reduce your overall tax burden.
Common Deductions that Reduce Your Taxable Income
Several deductions are available to South African taxpayers, some of which can significantly reduce the amount of income that is subject to tax. Here are a few common deductions that can help lower your taxable income:
- Retirement Contributions
Contributions made to approved pension, provident, or retirement annuity (RA) funds are tax-deductible. This means that the more you contribute toward your retirement savings, the less tax you will pay. SARS allows taxpayers to deduct up to 27.5% of their taxable income or remuneration (whichever is higher), subject to an annual cap of R350,000.
- Medical Aid Contributions and Expenses
SARS also allows deductions for medical aid contributions, particularly if you pay for medical expenses that are not covered by your medical aid. The medical scheme fees tax credit reduces your overall tax liability, and depending on the number of dependents you have, you can receive a rebate for these contributions.
Additionally, if you incur out-of-pocket medical expenses that exceed a certain threshold, you may be eligible for further tax deductions.
Other common deductions include things like travel expenses for employment purposes, donations to registered charities and interest on a home loan.
Tax-Free Investments and Exemptions
In addition to deductions, certain types of income are either exempt from tax or qualify for specific tax relief. SARS provides a few key exemptions that can further reduce your tax liability.
- Tax-Free Savings Accounts (TFSAs)
Introduced to encourage savings, Tax-Free Savings Accounts (TFSAs) allow South Africans to save up to R36,000 annually, or R500,000 over their lifetime, without paying tax on the interest, dividends, or capital gains earned within the account. This makes TFSAs one of the most attractive investment vehicles for individuals looking to save without incurring additional tax liabilities.
- Interest Exemptions
South African taxpayers under the age of 65 can earn up to R23,800 in interest income tax-free. For those over the age of 65, the threshold is higher, at R34,500. This exemption encourages individuals to save money in interest-bearing accounts such as fixed deposits or savings accounts.
Dividends received from South African companies are generally subject to a dividend withholding tax (DWT) of 20%, which is withheld at the source. However, dividends earned within certain tax-exempt entities, such as retirement annuities, are not subject to this tax.
- Capital Gains Exemption
When you sell an asset for more than you paid for it, you typically owe capital gains tax (CGT) on the profit. However, SARS provides a capital gains exemption of R40,000 per year. This means that the first R40,000 in gains made from selling assets like shares, property, or investments is not subject to CGT.
- Trusts
Some investments and assets are placed in trusts, which, under certain conditions, can provide tax benefits. Trusts can serve as tax-efficient vehicles for managing and protecting family assets. While income and capital gains earned by the trust are still taxed, there are structuring options that allow for tax benefits, particularly when distributing income or capital gains to beneficiaries.
Understanding your tax bracket is crucial for financial planning and managing your personal finances. In 2024, tax brackets in South Africa remain progressive, meaning higher earners pay a larger percentage of their income in tax. However, with proper financial planning and by taking advantage of the various deductions and exemptions allowed by SARS, you can effectively manage your taxable income and reduce your overall tax burden.
Make sure to stay updated on changes to the tax laws and take full advantage of all deductions, exemptions, and tax-free investments to maximise your savings.
