In accordance with the Income Tax Act of 1962, income tax is levied on all non-capital amounts received by or accrued to the individual in that specific tax year.

Some examples thereof are :

• remuneration, including bonuses, overtime and allowances;
• profit and losses from business or trade;
• income received as the beneficiary of a trust;
• investment income such as interest;
• rental income;
• pension income; and
• capital gains.

The Income Tax Act also allows some deductions from gross income. These deductions will result in your taxable income being decreased and may include :

• pension, provident or retirement annuity fund contributions;
• medical aid contributions;
• expenses incurred in the production of income (if any income besides your salary has been earned); and
• legal fees.

Being taxed as a sole proprietor is beneficial only up to the point where your effective tax is above 28% (the rate applicable to companies).

It is also important to note that only expenditure wholly incurred in the production of income is tax deductible.

Dual purpose (business and private) expenses have to be pro-rata.

SOURCES :

Cronje & Cronje
Business Partners