© Gareth Cotten.
MODULE 1
Part 1: Basic tax
concepts for
individuals
Table of contents
1. Introduction ................................................................................................................. 3
2. Introduction to the SA tax system ................................................................................. 3
2.1 Overview.......................................................................................................................... 3
2.1.1 Income Tax ............................................................................................................... 3
2.1.2 Residence.................................................................................................................. 4
2.2 Legislative framework ..................................................................................................... 4
2.3 Administration of the Act ................................................................................................ 5
2.3.1 SARS .......................................................................................................................... 5
2.3.2 Secrecy...................................................................................................................... 5
2.3.3 Collection .................................................................................................................. 5
2.3.4 Registration .............................................................................................................. 5
2.4 The courts ........................................................................................................................ 6
3. Tax Tables and Rebates ................................................................................................ 6
3.1 Tax rates for individuals 2024/25 .................................................................................... 6
3.2 Tax rebates and thresholds for individuals 2024/25 ...................................................... 7
3.2.1 Rebates ..................................................................................................................... 7
3.2.2 Tax thresholds .......................................................................................................... 8
4. Gross income ............................................................................................................... 9
4.1 The definition of gross income ........................................................................................ 9
4.2 Taxable capital gains...................................................................................................... 10
5. Conclusion ................................................................................................................. 10
6. Bibliography............................................................................................................... 10
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Learning outcomes:
LO1: Outline the current South African tax system.
LO2: Review the tax tables and available rebates.
LO3: Define what “gross income” is.
1. Introduction
The aim of this module is to illustrate the basic principles of income tax and how these
principles apply to individuals. The module will explore the fundamental defined terms of the
Income Tax Act ("the Act"), and how they interact to establish and determine an individual's
income tax liability.
An individual’s tax year runs from the 1st of March of the previous year, until the last day of
February of the current (tax) year. So, for example, the 2022 tax year ran from 1 March 2021
until 28 February 2022. For the purposes of this course, the information detailed herein
applies to the 2025 tax year, as this is the period for which most people would currently be
submitting returns. However, students should note that tax legislation changes every year,
and while this information is considered as correct at the time of release, it cannot be used to
inform your actions and decisions without seeking further professional advice. It will,
however, enable you to be more proactive in managing your tax.
2. Introduction to the SA tax system
2.1 Overview
South African law imposes taxes on various persons, including natural persons or individuals.
About 80% of all tax revenue collected by the state comes from personal income tax,
corporate income tax, and VAT combined. A further 10% comes from the fuel levy and
customs & excise duties, with the remainder being split amongst more minor tax types.
The most commonly encountered taxes for individuals are income tax, capital gains tax, value-
added tax, dividends tax, estate duty and donations tax. This module will only deal with
income tax, also commonly referred to as normal tax.
2.1.1 Income Tax
Income tax is imposed on the taxable income of an individual. The rate of tax is imposed
progressively – on a sliding scale from 18% to 45% (note that this upper threshold was only
raised to 45% in the 2018 tax year, having been 41% previously). Income tax is levied on an
annual basis and taxable income is determined over the course of a period referred to as a
year of assessment.
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An individual's taxable income is determined by subtracting all allowable deductions,
allowances, assessed losses, and exempt income from their gross income, and by adding any
taxable capital gain. It is ultimately calculated by applying the following formula:
Gross income Xxx
Less: Exempt income (xxx)
Income Xxx
Less: Deductions and capital allowances (xxx)
Add: Taxable Capital Gains Xxx
Taxable income xxx if (xxx) = assessed loss
The tax rate is then imposed on the taxable income, the relevant rebate is deducted, and the
remainder is the income tax liability. Over the course of the next two modules, we will discuss
how these terms are defined and how they interact.
2.1.2 Residence
The South African income tax system operates on a residence basis. This means that, generally
speaking, the system taxes individuals who are tax resident in South Africa differently to those
who are non-residents. At the outset, it is important to note that this residence status is
specifically determined for tax purposes and has no direct correlation to citizenship,
nationality, or immigration status.
Tax residence will be dealt with at length in a later module but, for present purposes, it is
sufficient to note that the Income Tax Act seeks to tax individuals who are resident in South
Africa on their worldwide income (subject to certain exceptions), and it generally seeks to tax
non-residents on income that is from a South African source.
2.2 Legislative framework
Income tax is imposed in terms of the provisions of the Income Tax Act (hereinafter simply
referred to as “the Act”). Sections of the Act grant the authority to the Minister of Finance to
impose regulations regarding the administration of the Act, and these regulations have the
same force as legislation.
As issues, debates and tax cases arise; the South African Revenue Services ("SARS") publishes
various Interpretation Notes (and Practice Notes) that “provide guidelines to stakeholders
(both internal and external) on the interpretation and application of the provisions of the
legislation” (SARS, 2017). These notes are not binding law, and are merely an indication of the
interpretations of the law favoured by SARS. However, they can serve as a useful guide for
taxpayers seeking clarity on various issues not expressly provided for in the law.
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2.3 Administration of the Act
2.3.1 SARS
The Act is administered by the Commissioner for the South African Revenue Service ("the
Commissioner") in terms of section 2(1) of the Act. SARS includes Customs and Excises and
Inland Revenue, although the former is not involved in the administration of income tax.
Certain of the Commissioner's powers may be delegated and are exercised by various SARS
officials throughout the country. However, ultimate decision-making power in respect of the
administration of the Act rests with the Commissioner.
2.3.2 Secrecy
In administering the Act, SARS is obliged to maintain secrecy in respect of taxpayers' affairs,
and all its officials are required to take an oath to that effect. In certain circumstances, the
secrecy provisions may be overruled or relaxed by, for example, an order of court.
2.3.3 Collection
SARS is also responsible for collection of income tax. SARS collects income tax from individuals
via employees' tax and provisional tax payments.
An employer collects employees’ tax by deducting the relevant amount from the
remuneration paid to an employee, and this amount is then paid over to SARS. It is effectively
a pre-payment of the income tax liability of that employee, and any amounts received by SARS
will be set off against the income tax liability of the employee as determined at the end of the
year of assessment. Similarly, provisional tax is another method of tax collection by SARS
applying to persons who receive certain kinds of income.
When applicable, collections from non-residents are facilitated by withholding taxes that
impose obligations on various, generally South African, parties to pay tax to SARS on behalf of
the non-residents.
2.3.4 Registration
To assist SARS in administering the Act, the legislation provides that individuals are required
to register for income tax and to submit an income tax return on an annual basis.
The Act obliges individuals to register with SARS as a taxpayer where they earn income in
excess of a prescribed threshold (see Tables below). All employees of an organisation must
also have an income tax number, no matter their earnings level. Every year, the Commissioner
informs the public of the deadline for tax returns to be submitted. If the tax return cannot be
submitted to the South African Revenue Service (SARS) before that date, the taxpayer may
apply for an extension to submit the tax return to SARS.
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2.4 The courts
Administrative action, which includes the administration of the Act by the Commissioner, is
subject to judicial review by our courts. The Act, like all legislation, may not contravene the
provisions of the Constitution and any provisions of the Act must be interpreted in a manner
that promotes the spirit, purport and objects of the Bill of Rights. Effectively, this means that
any matter dealing with interpretation of the Act or administration of the Act is subject to
review by our courts.
The Constitutional Court is the highest court in South Africa and deals with matters involving
the Constitution. Where a matter does not deal with a constitutional issue, the Supreme Court
of Appeal ("the SCA") is the highest court to which a taxpayer may appeal.
The various Provincial divisions of the High Court are one step lower down in the hierarchy.
Beneath the High Courts are the Tax Courts. These courts are interesting in that their decisions
are not binding on subsequent cases heard by Tax Courts, only on the particular parties to the
dispute. However, they are subordinate to the High Courts, the SCA, and the Constitutional
Court, and are bound by the decisions of those courts. The lowest court for tax matters is the
Tax Board, which deals with disputes that do not exceed R1,000,000.
The Act also provides for an internal dispute resolution process that is administered by SARS,
called alternative dispute resolution ("ADR"). The ADR process may be used as an alternative
to, or in anticipation of, instituting proceedings in the courts.
3. Tax Tables and Rebates
3.1 Tax rates for individuals 2024/25
The South African income tax system is a “progressive” one, which means that as a taxpayer’s
taxable income increases, their tax rate increases progressively as well. The thresholds of each
level, and the marginal tax rate applicable at each level, are shown in the table below.
Note:
The relevant and latest tax tables (or “tax rates”) are all available on the SARS website for your
reference.
Table 1: Rates of tax for individuals for the 2025 tax year (1 March 2024 to 28 February 2025). (Source:
SARS, 2024).
Taxable income Rates of tax
R 0 - R 237,100 18% of taxable income
R 237,101 - R 370,500 R 42,678 + 26% of the amount above R 237,100
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R 370,501 - R 512,800 R 77,362 + 31% of the amount above R 370,500
R 512,801 - R 673,000 R 121,475 + 36% of the amount above R 512,800
R 673,001 - R 857,900 R 179,147 + 39% of the amount above R 673,000
R 857,901 – R 1,817,000 R 251,258 + 41% of the amount above R 857,900
R 1,817,001 and above R 644,489 + 45% of the amount above R 1,817,000
You will notice that, from the second level onwards, there is a fixed Rand figure and then the
marginal rate is multiplied by the excess income over the lower threshold at that level. This
fixed Rand figure represents the amount calculated by multiplying at the upper threshold of
the previous level. For example, in the second level, the fixed figure is R42,678. This is
equivalent to 18% X R237,100, which is sourced from the previous level.
3.2 Tax rebates and thresholds for individuals 2024/25
To calculate one’s tax liability, though, one does not simply multiply taxable income by the
marginal rate, with the result being what is owed. SARS applies a system of rebates, applicable
to all individual taxpayers, no matter their level of earnings. To illustrate where these rebates
fit in, a summary of the mechanics of calculating a tax liability is as follows:
• Add up all gross income (covered later in this module)
• Subtract exempt income (covered later in this module)
• Subtract deductions (covered later in this module)
This will then give you your taxable income. This is the amount to which you will apply the tax
tables.
• Apply the tables
• Subtract any applicable rebates
This will then give you your tax liability – what you are ultimately due to pay for the year.
3.2.1 Rebates
The tax rebates applicable to individuals are:
• Primary rebate (this applies to all taxpayers, regardless of age) R 17,235.
• Additional secondary rebate (for persons 65 years and older) R 9,444.
• Additional tertiary rebate (for persons 75 years and older) R 3,145.
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Where additional rebates for elderly people apply, these rebates are cumulative. So, for a 69-
year old taxpayer, for example, their total rebate would be R 26,679.
3.2.2 Tax thresholds
The result of these rebates is that there is an effective “tax threshold” applicable to
individuals, up to which an individual can have taxable income for the year, and pay no income
tax. The tax thresholds are as follows:
• Persons under 65 years: R 95,750
• Persons 65 years to below 75: R 148,217
• Persons 75 years and older: R 165,689
Example:
The primary threshold, for example, comes about as follows:
If you were to multiply R95,750 by 18% (the lowest tax rate), you would get R17,235. As this
is equal to the primary rebate, the net tax liability would be exactly zero; hence the first
threshold at R95,750.
The pro-rata earnings of the employee will be scaled up to an annual equivalent when an
employee receives net remuneration from standard employment and is not employed by the
employer for the full year of assessment (Sage, 2017).
This annual equivalent of the employee’s remuneration will then be used to establish whether
such an employee falls above the tax threshold, for the purposes of employees’ tax. Note:
Employees tax will be examined in much more detail in later modules.
Using the tables and rebates:
Example 1
After taking into account all income and deductions, a 26-year-old taxpayer has a taxable
income of R104,000. His tax liability would be calculated as follows:
R104,000 X 18% 18,720
Less rebate (17,235)
Tax due for the year 1,485
Example 2
After taking into account all income and deductions, a 39-year-old taxpayer has a taxable
income of R300,000. His tax liability would be calculated as follows:
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R42,678 + 26% of the amount above R237,100
R42,678 + (26% X R62,900) 59,032
Less rebate (17,235)
Tax due for the year 41,797
4. Gross income
4.1 The definition of gross income
Gross income is defined as being “the total amount, in cash or otherwise, received by or
accrued to (or in favour of) a person” – from anywhere in the case of a person who is a resident
or from a South African source (or deemed source) in the case of a non-resident, during the
year of assessment, excluding receipts of a capital nature (Croome et al., 2013). The definition
then goes on to list specific types of receipts that are included in income, whether or not they
are receipts of a capital nature (Croome et al., 2013).
This definition can be quite daunting, and it’s more useful to break it down into its component
parts:
• There must be a total amount.
• It is important to note that an amount constitutes gross income even if it is not cash.
If a customer gives an asset in exchange for the sale of goods or rendering of a service,
the market value of the asset must be included in income.
• It must be received by, or accrue to, a person. So, an amount is included in gross
income when the taxpayer has an unconditional right to receive the amount, even if
the amount in cash has not been received yet.
• Income from anywhere in the world is included in the case of resident (note that a
company can be a “resident” for tax purposes), or in the case of non-resident, income
from a South African source is included. Income from a business carried on outside
South Africa was generally not taxable in South Africa prior to 1 January 2001.
However, with the residence basis of tax, South African residents are (subject to
certain exclusions) taxed on their worldwide income. Foreign taxes on that income
are generally allowed as a credit against South African tax payable. This is applicable
to individuals, companies, close corporations and trusts.
• The amounts must be received, or accrue, during the year of assessment.
• Receipts of a capital nature do not fall within gross income. This means that the
proceeds from the sale of an asset like immovable property will not be regarded as
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gross income, however, it should be taken into account for Capital Gains Tax
purposes.
4.2 Taxable capital gains
A capital gains tax event occurs when there is a disposal (or deemed disposal) of an asset on
or after 1 October 2001. An asset includes any form of property or an interest in that property.
A disposal is any action (by law, contract, or operation) which results in a transfer, creation,
extinction or change of an asset, and includes a change in the use of the asset (for example,
from business to private use).
The base cost of an asset is usually the cost (actually) incurred in acquiring the asset and any
other costs directly related to its improvement and the direct costs for its acquisition or
disposal, as well as certain holding costs. If any costs have previously been allowed as a tax
deduction, these are not included in the base cost.
The proceeds from the disposal are the amount received by or accrued to the seller of the
asset.
If there is a net capital gain for the year of assessment, the entire amount is not brought into
the tax liability calculation – rather, it must be multiplied by the inclusion rate when brought
into the calculation. For individuals, (including sole proprietors and partnerships) this inclusion
rate is 40% for the 2025 tax year (this has held steady over recent tax years).
The effective rate of tax on the gain will therefore be a maximum of 18% (being 40% of the
maximum marginal rate of 45%) for individuals. This will be covered in more detail, though, in
the section on Capital Gains Tax in Module 2.
5. Conclusion
This set of notes has introduced you to the South African tax system, as well as some of the
fundamentals of income tax, and the way in which it impacts on individuals. The basic
calculation of income tax was covered, by working through the concept of gross income.
The following set of notes will cover exempt income and deductions, as well as the basics of
eFiling and some examples.
6. Bibliography
Croome, B., Oguttu, A. W., Muller, E., Legwaila, T., Kolitz, M., Williams, R. C. & Louw, C. 2013.
Tax law: An introduction. Cape Town: Juta.
Department of Labour. 2016. uFiling. Available: [Link] [2016, March 16].
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Sage. 2017. Payroll Tax Pocket Guide 2017/18. Available:
[Link]
[Link]?la=en-za [2017, July 17].
South African Revenue Services. 2016. eFiling. Available: [Link]
[2016, March 16].
South African Revenue Services. 2019. Interpretation notes. Available:
[Link]
Notes/Pages/[Link] [2019, March 11].
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