Tax treatment for individuals with multiple income streams

Over the last few weeks we’ve noticed a trend among the tax queries we are receiving. Rather a lot of the questions we’ve received have been around the tax treatment of income generated from trading and investment activities, over and above salaries earned. We’ve received questions like; how do I report additional income on my taxes?, how do I claim stock losses on my taxes?, what is a tax directive? Therefore we thought it would be helpful if we shared some tax treatment insights for individuals with multiple income streams.

1. How do I include income from multiple revenue streams in my tax return?

This seems to be one of the matters giving people sleepless nights as we get closer to the tax reporting season. In general, people who ask about tax treatment of individuals with multiple revenue streams are usually expecting to have (or fearing) a large tax bill. It seems that there is some confusion around where they fall in the the tax brackets when all revenue streams are combined.

Keep in mind:

  • For each revenue stream (that is not a salary with an IRP5 or an IT3) a Statement of Profit and Loss must be drawn up for the Tax year in question.
  • On your Personal Income Tax Return you need to add multiple Income Statements to input the information from the Statements of Profit and Loss created for each additional revenue stream.
  • All of these items combined (IRP5s, IT3s and Income Statements) will give you your total taxable income for the year.

Naturally, there are a few different scenarios that may or may not be applicable to you, so we’ll look at the three most common ones.

Scenario 1 – multiple salaries:

  • All salaries as per your IRP5s have had PAYE submitted within the tax bracket you fall under for that specific salary (your employer has paid your tax to SARS each month).
  • The Statements of Profit and Loss have been done throughout the year and you have paid the necessary provisional tax based on the tax bracket you would fall in (using net profit as your taxable income amount).

In this scenario you would have paid over all the necessary taxes as the tax brackets for individuals takes the different levels of tax into account. This means that, for example, you earned one salary in ‘bracket 1’ and two other salaries in ‘bracket 3’, the tax payable will work out the same as if they were all combined in one salary and paid throughout the year. There may be a minor amount due for the Statement of Profit and Loss amount calculated if you have used the incorrect overall tax bracket for you as an individual.

Scenario 2 – salary plus trading profit:

  • All salaries as per your IRP5s have had PAYE submitted within the tax bracket you fall under for that specific salary (your employer has paid your tax to SARS each month).
  • The statements of profit and loss have not been done throughout the year and you did not pay the necessary provisional tax based on the tax bracket you would fall in (using net profit as your taxable income amount).

This would result in an amount due and payable to SARS (assuming a profit is made on the statement of profit and loss). The calculation would be done by taking all taxable income into account in order to determine the final tax bracket for the year. From here you can calculate the total tax due. From this amount you would deduct all PAYE already paid to SARS (from your salaries), and this will result in the net amount due and payable.

Scenario 3 – salary plus trading loss:

  • All salaries as per your IRP5s have had PAYE submitted within the tax bracket you fall under for that specific salary (your employer has paid your tax to SARS each month).
  • The Statements of Profit and Loss have been done throughout the year and you paid the necessary provisional tax based on the tax bracket you would fall in (using net profit as your taxable income amount), although a loss was made trading for the year.

A loss made on your Statement of Profit and Loss can aid you in receiving a refund from SARS. The same would apply as stated above, except that your taxable income would be decreased by way of the loss made in your other revenue stream. This is the case, unless SARS determines it necessary to ring-fence that loss. This means that if the loss is ring-fenced, it can only be offset against future profits made for that same specific source of income. For example; if an additional revenue streams losses have been ring-fenced that revenue stream has now turned a profit – the loss of the prior ring-fenced years would be offset against the profit made and thus reduce your overall income for the year.

Note: Under section 20A(2)(a) an assessed loss will be subject to potential ringfencing if assessed losses have been incurred in at least three out of the last five years of assessment. The five year period includes the current and four previous years of assessment.

2. How does a tax directive work?

A Tax Directive can be a very helpful tax tool for people who earn fluctuating amounts of commission on a monthly basis. The Tax Directive allows you to be taxed under one tax bracket for the full tax year. This means that no matter what the commission earned in a single month, you will only be taxed in whichever tax bracket you have been approved for. This helps save you from being taxed at 18% one month, and 40% the next month.

Note though that, it becomes your responsibility to ensure that you submit provisional taxes if deemed necessary. As a commission earner you need to build Income Statements for the year. An advantage is that any costs relating to the production of income can be deducted from the total commission earned for the year. Thus your annual net profit amount is used to determine the tax bracket you fall under.

SARS allows you the option to apply for a Tax Directive so that if you are a commission earner you do not have to overpay taxes for the year only to receive a large refund once Tax Season opens. Generally it makes life (and cash flow) a little easier for commission earners.


Herenya Capital Advisors’ specialist tax consultant and Registered Tax Practitioner is uniquely positioned to aid investors, traders and corporates with a variety of tax consulting services.

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