A few disclaimers before we start: some of the things that you can claim are listed below, but please note that the percentages (%) indicated will differ for individual taxpayers, depending on their individual circumstances. Therefore they serve as a general guide only, but as a rule of thumb, the portion of an expense type that you can claim must be in line with what the actual use is. So if you claim 50% of your cellphone bill, you must be able to prove that 50% of the calls were related to trading and research. If you need some help, reach out to us and we’ll gladly help you compile and submit your return.

Alright, so in a nutshell, your trading accounts can be grouped together as a ‘business activity’ and then expenses can be claimed against that in your tax return. This effectively reduces your taxable income and reduces your tax obligation.

Here are the expenses that can generally be claimed:

• 50% of your annual internet bill – you use the internet to trade and do research, but you also use the internet for Netflix and general browsing. Therefore you can claim up to 50% of the annual internet expenditure as you need to be connected in order to generate the income earned from your trading.
• 50% of your annual cell phone bill – making calls to brokers, other traders, analysts, etc. are all expenses that you need to undertake in order to generate income. Therefore a portion of your cell phone bill can be claimed as an expense against trading income.
• 30% of your rent or bond – you likely have a home office in which you do your trading and research. Technically you can only claim for the portion of your home that makes up your office. So if your home is 100 square meters, and your office is 15 square meters big, you can claim 15% of you annual rental of bond expenditure. This is capped at 30% of your total annual expense.
• 30% of your water and electricity bill – once again, if your trading office is at home, you are able to claim up to 30% of your water and electricity bill as those are inputs you need in order to generate income.
• Software, data subscription services and newsletters – if you use third party software or have monthly data or newsletter subscriptions that you need for your trading and research activities, you are able to claim these expenses. You could also include a portion of your DSTV subscriptions here (up to 50%) for the purposes of watching news channels during working hours.
• Computer hardware purchases – you can depreciate any computer hardware purchases made in the year. If the purchase price was R7500 or less, you can write it off completely and if it was more than R7500, you can depreciate it and write it off over a three year period. Thus, effectively reducing your earnings for the period. Note that this includes things like UPS systems to protect you from load shedding.
• Furniture purchases – as is the case above with computer hardware, you are able to write down (depreciate or write off) items like chairs, desks and extra screens, or TV’s used to watch news in your office.
• Brokerage and monthly account fees – you can claim these, although they are usually included in the tax certificates your broker sends you annually, so they are technically already included in your final profit and loss calculation used to compile the tax certificates. You cannot claim them twice.
• Salaries paid to supporting staff – if you have a domestic worker that cleans your office or an assistant that helps you with research, you are able to claim back their salary as an expense required to generate income. In the case of a domestic worker, you cannot claim the entire salary as they also do work in the rest of the house, but you can claim one or two days a week, depending on how often they work for you, specifically in respect to your ‘trading office’.
• Books and educational resources – if you have bought any books about trading or educational material about finance in general, you are able to claim those purchases as an expense.
• Consumables – coffee, lunch, stationary and anything else that is consumed (used up) in order for you to be able to generate income and perform your trading and research tasks.
• Travel and entertainment – if you traveled to an investment conference and had to pay for flights and a ticket to the conference, or even had a lunch with an analyst or your stockbroker, you are able to claim those expenses as they were required for you to generate trading income.

As you can see, there are many expenses that you can claim against your trading activities, but consider this a fair warning; you have to be able to prove that these expenses are in fact related to your trading activities.

SARS will audit you if you claim all these various expenses and you will have to supply supporting documents in the form of:

• a schedule outlining when and how these expenses were incurred,
• three sample statements or invoices for each expense type,

and possibly;

• a transaction record of all your trading accounts, as well as,
• a declaration or sworn affidavit stating that these expenses are in fact legitimate expenses incurred in the income generation process.

It is highly advised that the schedule and sample statements be prepared before submitting your return so that you can immediately submit them when the request for supporting documents come. Sometimes SARS will ask for more supporting documents after you have already submitted the schedule and sample statements, at which point a detailed trading record and declaration might be required.

Also, please note that once you are on the audit list at SARS, they will likely audit you every year. It’s not the worst thing as it forces you to stay on top of your expenses and generally works in your favour. You just have to make sure that all the supporting documents are accurate and correctly accounted for in order to avoid any disputes or tedious back-and-forth admin.

If you need some guidance on how and what to claim, creating schedules and submitting your returns, please reach out us. Our in-house tax consultant is experienced with these matters and will be able to assist you if you need.

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If the value of the asset is below R 7 000 it can be written off in one period. Alternatively it would need to follow the SARS schedules for wear and tear and be written off over time. This is nothing new, but the COVID-induced lockdown has make it more applicable now than ever. Many people have either opted or been asked to work from home and thus have had to purchase items to help them stay productive.

For traders and investors this works the same – as you build your income statement for the year from your trading and investment activities, you can also take depreciation on your assets and equipment used in the production of income into account, and write off depreciation on those assets. For example: a laptop that was purchased and additional screens, etc. This is important to note as it can help knock profits down to a more accurate taxable income for the tax year, and thus reduce the total tax amount payable to SARS.

Keep an eye out for our write up next month in which we will be looking at home office expenses and lockdown expenses that can be used in your annual income tax return.

If you have any questions or would like some assistance with doing your tax return, please contact us and we’ll be happy to help.

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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 ring–fencing 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.

Consult with us

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People often moan about paying taxes, but remember, having to pay tax means you’ve been making money. So it really is a good problem to have! Besides, if you do your tax returns correctly and make sure that you include all the information that you’re allowed to include, often you can end up with a rather pleasant surprise.

Here are a few things that we think you should keep in mind when preparing for, or compiling your tax return:

• IRP5 – confirm that your IRP5 has been submitted and that you have received it from your employer.
• Medical aid tax certificates – these should be sent to you annually by your medical aid provider or you can request it from them.
  • Ensure that you keep any invoices/receipts for additional medical costs that may not reflect on your medical aid tax certificate.
• IT3B tax certificates from your banks, investment houses (investment and trading accounts) and pension funds – these detail all interest, costs and dividends earned on your savings/investments over the year.
  • Tip – Remember your annual Interest income exemption of R23,800 – this means that interest earned of up to R23,800 is not taxable (and if you’re over 65, that exemption is R34,500).
• IT3C tax certificates from your banks, investment houses (investment and trading accounts) and pension funds – these detail all sales and purchases of shares giving you your Capital Gains Tax profits to be used when submitting your annual return.
  • Tip – Remember here that as an individual you have an annual exemption of R40,000 per annum.
• Logbooks – for those of you with travel allowances, ensure to have prepared and submit your annual travel logbook.
  • If during the year you have driven two different cars, then both logbooks will be needed.
  • Details of the vehicle(s) that need to be included:Make and model.
  • Year.
  • Cost price when purchased (SARS can also request the invoice for the vehicle).
  • Number plate (registration number).
  • Tip – To speed things up, ensure your opening and closing odometer readings are shown. You can also provide a summary of the full logbook at the top of the page – Opening Km, Business Travel, Private Travel, Closing Km.
  • Commission earners – remember that logbooks will be needed to correctly calculate the costs allowed to be expenses for tax purposes when building your annual Income Statement.

Active traders and full time investors – if you are an active trader or a full time investor, you will be able to claim back a portion of number of the expenses that you incur in order to trade and derive income. These include:

• Internet and telephone bills.
• Portion of your rent/bond expense – proportional to the amount of floor space your office takes up in your house.
• Portion of your water and electricity bills – same proportion used as with your rental/bond expense.
• Depreciation on computers and office equipment used to trade and generate income.
• Consumables like coffee and paper, etc.
• Subscriptions to news and information services and software licenses.
• Salaries paid to supporting staff.
• Tip – you will need to provide a detailed report and sample invoices, statement and documents for each of the expenses you are claiming, as well as a consolidated report showing all claimed expenses.
• Tip – if you have purchased assets that you use for work purposes such as a laptop, financial calculator or even textbooks/handbooks that are needed for you to do your job and generate earnings – you can use these items to claim wear and tear (Depreciation) on your personal Income Tax Return, even if you are a salaried employee.

If you would like for us to assist you with your tax return so that you can be as tax efficient as possible, please email us on tax@herenya.co.za.

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