Old Mutual On The Money
Old Mutual On The Money
Tax Expert Nokuthula Manana Shares Tips on Tax Returns and Side Hustles
Should you declare your side-hustle income? John Manyike chatted with tax expert Nokuthula Manana of Limitless Business Solutions, who says it’s not only law but might boost your chances of getting money back on your tax return.
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Old Mutual 0:00
Welcome to the On The Money podcast with John Manyike.
John Manyike 0:04
Today we're talking tax, you will know that death and tax is guaranteed. But to unpack these things, especially about tax, we're joined by Nokuthula Manana. She's the owner of Limitless Business Solutions. You're going to help us today understand this thing of tax. I know people don't just wake up in the morning and say "Ah today, I feel like I feel like paying my tax this morning." It's a grudge, you know, for a lot of people.
Nokuthula Manana 0:31
Sure.
John Manyike 0:32
But before we talk about taxmen, I want to understand you your profession. I mean, you're an accountant. Yeah. What did you study?
Nokuthula Manana 0:39
So I studied BCom accounting from the University of Johannesburg, but it was RAU back in my day. I know I'm giving away my age, but yes. I also have worked quite in a number of accounting firms. So the recent firm that I worked for was Deloitte Consulting. Although I wasn't really doing work that's relating to accounting, it was more around, management consultancy, so process mapping. So I'm also a business expert, so to speak. So the current business that I run of which I have been running since 2016, is really focused on providing services to SMMEs, mainly accounting, tax and business consulting services. But as well, we also do work and partner with big corporates who don't have capacity and just want us to come in to either work on tax matters, or anything really that aligned with our expertise.
John Manyike 1:34
Okay. I've seen or even heard of, very well known people who've had issues with tax and it's not small amounts. What usually goes wrong there?
Nokuthula Manana 1:46
Well, majority of the time, what really goes wrong, or what I've seen, in my experience, it's people thinking that I'm an actor, I'm getting 200,000 and when the 200,000 comes in, I know exactly what I need to do. I therefore neglect the fact that I need to pay tax. So then therefore, I spend the 200,000. And again, I think it's also really around people not being fully educated about tax and understanding what are the implications if I don't pay. The only thing that people know about is that I go to jail but that's like an extreme measure and as well, just people neglecting issues and leaving them for the last minutes, and not having professionals come in or consulting with a professional to assist you, either with planning upfront, or, or as the money comes in, what do I do in order to ensure that I'm compliant?
John Manyike 2:44
So can you lose assets? If you owe a lot of tax?
Nokuthula Manana 2:47
Well, that's normally a compromise that you get into with SARS. If the liability is exorbitant, and you don't have the funds at that specific point in time, then SARS yes, according to law, they can actually take some of your possesions to try and recover the liability that is owed.
John Manyike 3:07
That sounds hectic. But let's take it from the top, what is tax?
Nokuthula Manana 3:11
So tax is basically it's a way for the state to gather money in order to run the country. So it is levied on income that is generated by individuals or by businesses who are within the borders of South Africa or who are seen as a tax residency according to tax law.
John Manyike 3:32
Okay, so what are the three main sources of of tax?
Nokuthula Manana 3:36
It's personal tax, it's VAT as well as tax that is paid by businesses.
John Manyike 3:42
Okay. So that's corporate tax.
Nokuthula Manana 3:44
Corporate tax.
John Manyike 3:45
Okay. So but out of those, I mean, which one is the biggest contributor to our national budget?
Nokuthula Manana 3:50
It's actually personal tax. So tax that's levied on individuals
John Manyike 3:54
Oh so this tax that we pay as the individual is the one that makes up the biggest chunk of additional budget?
Nokuthula Manana 4:01
Yes, that's true.
John Manyike 4:03
Who is liable to pay tax? I mean, are we all supposed to be paying tax or are there other people who are exempt from paying tax?
Nokuthula Manana 4:11
There are some sorts of income that are tax exempt. But if for instance, you're an individual, you're seen as a resident of South Africa, and you say earn a salary, and your salary is above R94,000 or so per annum, then tax will be levied on the income that you're earning.
John Manyike 4:32
Okay. So if I earn less than that R94,000. You say R 94,000?
Nokuthula Manana 4:36
That's a threshold
John Manyike 4:36
That's a threshold
Nokuthula Manana 4:38
That's me rounding off but yes, R94 000.
John Manyike 4:41
Okay, so if I earn less than that, I am not liable to pay tax every month.
Nokuthula Manana 4:44
Yes, there'll be no tax that is levied on your on your income.
John Manyike 4:47
Okay. So those who earn above that, I mean, how are they paying tax? Okay, I work for an employer and, and I see on my pay slip they've written this is my pay as your earn, so that's how I'm paying tax. But on top of that, I mean, we keep hearing, that people have to file for tax returns. What is that? What is a tax return?
Nokuthula Manana 5:12
Let's take it from the top, right. Your employer withholds tax rom your salary on a monthly basis. They then pay it over to SARS by filing a return that is called an EMP 201. Then this happens over a period of twelve months, and then filing season opens for employers to file something that is called an EMP 501, which is a reconciliation of all the EMP 201s that have been filed for respective tax year. Together with that EMP 501, there's something that the employer also needs to generate, which are IRP 5’s. And that with the IRP 5, all the amounts that have been deducted from those respective individuals needs to reconcile back to the amount that's been declared or that's been submitted to SARS via the 501, the EMP 501. When you're filing your tax return, obviously at that specific point in time whatever that your employer might be deducting from your salary is what they've got line of sight of. So in terms of your salary, in some instances, you've got a medical aid, so you'll also receive a medical aid certificate. And let's say, for instance, you've got a retirement annuity, but that is not necessarily through an employer, but in your own private capacity. When you're filing your tax return, this is now you reconciling everything that pertains to your income to SARS and saying, this is who I am. And therefore an assessment will be done to see whether are you liable to pay in or does SARS then refund you liable to give you a refund?
John Manyike 6:50
Is it possible for SARS to say you have not paid tax and yet you do, or you're liable to pay tax, but on your pay slip it shows that money is deducted by the employer for tax. Are there such instances?
Nokuthula Manana 7:31
Well, that's like fraud right on the part of your employer. And before you actually having to go in and file your IRP 5, SARS would have already seen that your employer is liable to actually pay in a specific amount. Because when you're filing your EMP 501 and it reconciling back to all the monthly returns that have been filed. It also shows whether what money has been receipted by SARS. And according to the recon, this is how much needed to have been paid in. So if your employer hasn't paid in anything, then they would have seen from then that they actually need to pay in. So you as an individual, you now declaring and filing your return won't necessarily be an issue on your side as an individual because like I say, SARS would have already kind of reflect flagged the employer to say that you actually owe this amount of money. Yeah, so if you go to SARS and SARS says you owe money, you didn't pay tax at all. But you know that in your payslip there's money. What should you do as a person, as a tax payer? So what you need to do is you first need to start with the police. So you need to put together an affidavit and state on the statement to say that, “I'm employed by this specific entity. This is the amount of money that was deducted from my salary on a monthly basis. And basically this is the money that I was receiving.” So SARS obviously will request specific documentation as proof of the money that has been coming into your account, such as your bank statements. Your bank statement should correlate with the net pay that's on your pay slip to kind of prove that tax was actually deducted off your salary.
John Manyike 8:56
So here I am, I have a nine to five. But I have a side hustle. This side hustle ama-room like in the townships with ama-rooms. Okay, but in the in the suburb, it's an apartment Okay, so when it's an apartment or whether i-room ekasi but there's a rental income.
Nokuthula Manana 9:16
Yes.
John Manyike 9:17
Should I declare this rental income to SARS?
Nokuthula Manana 9:20
Yes, you should.
John Manyike 9:21
What would happen if I don't as well?
Nokuthula Manana 9:23
By law, you're actually supposed to be declaring all income that you're earning within the South African jurisdiction, right. Um, whether it's rental income, or whether it's income that you're receiving from shares that you hold in another country or whatever else, all of that income should be declared. So what I can say if you don't declare that income that pertains to rental income in particular, you might be shortchanging yourself and reason why I say that you might find that you've actually made a loss from that side hustle for that respective year. That loss is actually deductible against the income that you've made. And you might find that there's money that is owed to you, as a taxpayer, because when SARS does an assessment, they don't necessarily do an assessment based on each component of income that you've earned. So meaning they don't just look at everything in isolation, but they look at your entire assessment as a whole. Yes. So in that case, you might be shortchanging yourself in that there might have been there might be a refund that is due to you. According to law, if you are generating an income that is above R30,000, no matter what type of side hustle it is, it needs to be declared over to SARS.
John Manyike 10:36
I think you're onto something you're saying this side hustle. You can declare it provided is over R30,000?
Nokuthula Manana 10:44
Yes
John Manyike 10:44
If it's less than R30000 per annum you don't have to declare it?
Nokuthula Manana 10:47
You don't necessarily have to declare it.
John Manyike 10:49
Okay, how likely is it that if I declare, let's say, for argument's sake, my side hustle is giving me more than R40,000? How likely that will be due for a refund? Because I mean, this is additional income that potentially would increase my earnings for the year, but isn't it I am likely going to be owing SARS?
Nokuthula Manana 11:12
Hence, I said John, let's say in the event that that side hustle is making a loss, so meaning
John Manyike 11:19
Oh, if the side hustle is making a loss.
Nokuthula Manana 11:20
Yes.
John Manyike 11:21
Okay. Okay, I want to put this in context. Because in this case let's say for argument's sake, but I want to look at two scenarios Rashawn, maybe I borrowed money to build those rooms, and I'm paying that loan every month. So the rental income is going towards servicing their loan, that's an expense. That's one scenario. The other scenario is that, well, I don't have any other expenses, I build this thing. And I don't have any other expense.
Nokuthula Manana 11:49
Well, John, to upkeep any, any structure, there are expenses that you're going to incur, such as rates and taxes, such as electricity, such as a lady that come through and cleans the facilities, such as repairs and maintenance of that specific structure. So those are the types of expenses that that I'm that I'm referring to. So in the event that, for instance, you've now loaned money from, let's say, from a bank, the monthly installments that you pay towards that specific loan are not tax deductible, but the interest that you're paying towards that loan is what is then tax deductible, and what you can then declare as an expense against that rental income. But the monthly payments that are made are capital in nature, therefore you cannot deduct them, or they're not they're either not tax deductible. So it's not in all scenarios where you'll make a loss in the event that you do make a profit, right, and that profit then is going to be added to the gross income, or rather to the taxable income. That is that your your your tax liability will be calculated on. But in certain instances, let's say for instance, this amount now that's been added to your income does not in any way, take you up to the next tax bracket, the same percentage, right, or that was applied in calculating a tax liability on your salary is still the same. So you might find that there is no amount that needs to be paid over to SARS. So it's only in the event that it takes you to the next tax bracket, where you actually might see yourself at the liability.
John Manyike 13:29
Okay, what you're saying in a nutshell, is that you have to be transparent.
Nokuthula Manana 13:32
Yes,
John Manyike 13:33
And declare this additional income. And then you've you've touched on the issue of, you know, the threshold per annum in terms of additional income.
Nokuthula Manana 13:43
Sorry, what's also very important, John is record keeping, yes. So record keeping from all the slips of all the expenses that you've incurred, as well as record keeping off the of the income that you've actually received. So in the form of bank statements or whatever else. So record keeping is very, very important as well. Because when you're submitting your return, in the event that you're verified, or a verification is raised or an audit, you would need to actually provide those supporting documentation.
John Manyike 14:15
Okay, talk to us about the risk of inflating expenses, to avoid tax. What is the danger with doing that?
Nokuthula Manana 14:23
SARS has ways of verifying whether an invoice is correct or not. So, you might not be caught the first time around, but at some point you will be caught and SARS us all sorts of questions in order for them to verify whether an invoice is genuine or not.
John Manyike 14:43
And it's also criminal record I mean to be falsifying or inflating expenses, which brings me to the next question. What is the difference between tax evasion and tax avoidance
Nokuthula Manana 14:58
So tax evasion is the example that you've just you've just used right now. So it's basically you, using criminal ways of trying to evade tax. And then tax avoidance is when you're actually using what's in the tax legislation and that's been placed in the law to actually find ways of decreasing your tax liability legally within the ambits of the law.
John Manyike 15:26
Okay. Now, going back to the issue of side hustle. Because, there are many side hustle outthere you know, but, you know, for whatever reason, people don't declare. Here's a scenario. I have a 9-5, But I also have this online gig because you know, online is a big thing. You know, people are making money online, whether you're an influencer or whatever. So let's say this income is from overseas, this is what you do. You're doing tutoring, maybe you're teaching people English in Germany, France, and all that, and you're actually getting an income, should you be declaring that because it's coming in dollars.
Nokuthula Manana 16:01
Yes, you should be declaring that. So you're taxed on all income that you are generating, as in an individual's case all income that you're generating whilst you are seen as you are deemed by law as a South African or tax resident. So if the side hustle, you are performing it, and you are performing it from here in South Africa, you are, by law required to declare that income. But let's say for instance, it's income that is, or rather, that you're generating from another country, and you and you're not in South Africa, when you're actually performing that service or whatever else, then there's something that is called the residency test that needs to be done to actually determine whether you were resident in that specific tax year in order to determine whether that income there needs to be included in your assessment or not?
John Manyike 16:55
Okay, so, think about that scenario. My name is Bassjon, I found a job in another country, I won't say which country, so I found a job later in Turkey and they pay me in the currency of the country. Yes. And I worked there for more than 12 months. Okay, am I liable to pay tax in Turkey, or in South Africa,
Nokuthula Manana 17:19
You're liable to pay tax in Turkey. Okay. And like I said, there's something that that, that we use to determine whether are you liable to pay tax in South Africa or not, which is called the residency test. So for instance, in the example that you've given, you're based in Turkey, so if you're out of the country for a t of consecutive 186 days, but it has to be consecutive days. And there's other criteria, and that also needs to be looked at, then you might then be seen as non resident for that specific tax year. You will then pay tax in Turkey.
John Manyike 17:54
Okay. Now, another scenario, here, I work from home since COVID. Right? And I'm using my domestic residential property to actually do work. Is there some tax rebate? Can I claim something by virtue of working from home?
Nokuthula Manana 18:11
So tax relief is really given around if you're working from home, and the area where you're working from is exclusively work used for work purposes? So for instance, it's not a bedroom, where there's a bed, and then you have a desk. Yeah, in that particular instance, you cannot claim any expenses mainly because it is that specific area is not exclusively used for the service that you're providing. So the area where you're working from needs to be exclusively used for for that specific work or job that you're doing. Then in that specific instance, what you would need to do is determine whether the expenses that you're incurring as a household or in the house that pertain to the property, so meaning the garden services, the Wi Fi, if you're renting, then the rent that you're paying, electricity and water. And although those two components are tricky, but yes, let's for this example, let's let's include them, you would then look at what the square meterage is of the entire house and then add the square meterage that you are occupying for that specific service. You will then apportion the total expenses based on the square meterage that you are occupying.
John Manyike 19:38
Okay, so I can't just say I work at the lounge on the table, but we use the lounge for other things in the house. But I can't I can't claim for them, it has to be secluded for what purposes for me to be able to claim.
Nokuthula Manana 19:53
Correct
John Manyike 19:54
Okay, another scenario again. You often hear people say I opened a company, you know, they register company, CIPC, but, you know, I don't have a plan. I just registered the company and it's not trading and so on. Is there a risk that I may be liable to submit tax return for the business that I've registered, whether it's trading or not?
Nokuthula Manana 20:14
So yes, by virtue of you having registered that company, firstly, there's two entities that you will you need to submit your returns to. So firstly, CICP. So CICP requires you to submit a return on the anniversary of when the company was opened. And reason why you do that. And there's a specific amount that you pay, which is like R100 if he didn't generate any income at all. And that is basically to keep your company active. Because in the event that there's five returns that or three returns that are outstanding, they do something called an interim deregistration of the business. And then if there's five returns that are outstanding, then and it undergoes finally registration, and the company is no longer active, you cannot use it. It's, it's just thrown off the books, then, because now SARS and CICP have integrated systems in that when you're ready, when you register a company, you're automatically registered for tax. Whereas pre 2019, the onus was on you to actually go to SARS, and register yourself for tax. But now everything is integrated, you're registered for tax. So therefore, meaning that you're also liable to ensure that you submit tax returns to SARS. So there's two times that you would need to submit, there's something that is called provisional tax, which is submitted every August and February. So those are the two returns you must submit, and then there's an income tax return, that you must also submit with the provisional tax return in February, in the event that you don't do that, then SARS will impose penalties and interest for the outstanding returns.
John Manyike 21:58
So in other words, there is a risk with just opening a company. And I know I don't have a business plan. I just like the idea of starting a company, but I haven't started implementing anything, because then I may attract certain obligations from a tax submission point of view and all that. Yes,
Nokuthula Manana 22:16
Yes, it's expensive, firstly, to maintain to keep that company active. And again, yes, it also has an administrative component of you having to submit the returns to CIPC and to SARS.
John Manyike 22:28
Okay, last two questions. I have a retirement annuity which I pay to a particular service provider, a financial institution, when I submit tax return, what is the benefit of having a retirement annuity, and when I have to submit my tax returns?
Nokuthula Manana 22:47
So the government has put in place an incentive, where it incentivizes individuals who are thinking about their about retirement. And reason why they do so is mainly because I mean, that kind of takes off the burden of the state of you [earn elderly grant] when you've retired. So how you are incentivized incentivized is that it's an allowable deduction that is deducted against your your taxable income for that respective period, which might not in all cases, I might please may I emphasize, which might result in you being refunded for that respective pay.
John Manyike 23:29
I have a medical aid, but some the other expenses that medical aid didn't cover, Can I submit some of those claims where medical aid didn't cover to SARS?
Nokuthula Manana 23:40
I always say to my clients that if the medical extra medical expenses that you have incurred are less than 30% of the income that you've earned, it really will not make a difference to your tax return. But yes, you may submit those additional expenses. There is when you going through a tax return or visit where it asks you do Are there any other additional expenses that you might have earned outside of your monthly medical aid contributions that you would like to declare? But in that specific instance, for instance, you would need to have all the receipts in the supporting documentation to validate that amount that you've put in there to say that this is what I have incurred.
John Manyike 24:24
Last question. I am using my own car. Yes, business travel. Can I claim some of those expenses and what are the requirements?
Nokuthula Manana 24:37
So in order for you to claim for usage of your own car, for business purposes, what you need to keep is something that's called a logbook. And SARS has a logbook that you can actually download and use. But there's also logbooks out there that actually fit the class SARS' requirement in terms of the information that must be presented on that logbook. So you would then need to differentiate, differentiate between your personal travel. And as well as your business, your business travel, you would also document the fuel. But if you have an updated logbook that's got all that information in there, for example, it will, it will say, what were the opening kilometers, when you actually started the trip? What were what are the kilometers in terms of where you're traveling to for your clients, but with the chosen kilometers, it will ask you the destination. So it's quite extensive. So it's important for you to actually use it on a daily basis, you cannot say that I am going to record all my travel for the entire 12 months because what's the probability of you remembering ?
John Manyike 25:43
Highly likely.
Nokuthula Manana 25:44
Yes so it's so though that's what you need to have.
John Manyike 25:47
Okay. Wow, I realized that tax is such a broad topic. I mean, we we can talk for days about tax. And but thank you for for sharing. I'm hoping that followers would have picked up something there in terms of what they need to do as they prepare for the next filing season. I'm hoping you can join us next time maybe we can hone in on other areas of tax very much keen to know more about tax when it comes to trust tax on other other areas, with corporate tax and things like that. But thank you for joining us and we really appreciate your contribution.
Nokuthula Manana 26:23
Thank you, John. Thank you for having me.
John Manyike 26:24
Thank you. Subscribe to the old retrial on the money YouTube channel and become a master with your finances.
Old Mutual 26:30
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