Q&A: Must I pay provisional tax for freelance work?
If you earn income from running a business, you must file a return
Q: I receive untaxed income from freelance work beyond my full-time job. Last year it was below R30,000 and this year it is also less than R30,000. An SA Revenue Service (Sars) official told me I don’t need to fill in a provisional tax return. I am, however, expecting to earn more than R30,000 in the new tax year. In the article “Filing a provisional return is more PT, not more tax” published on BusinessLIVE on January 28, it says “you must register if you earn any amount from a small business or from freelancing, or if you earn above the threshold and your taxable rent, interest or dividends exceed R30,000”. - Wanting to comply, via email.
A: Daniel Baines, tax consultant at Mazars, replies:
As per the Sars guide on provisional tax, an individual must file a provisional tax return if you earn income from running a business. Freelance work that is not subject to PAYE would count as running a business for the purposes of provisional tax. It is only if your taxable income from interest, dividends, foreign dividends or rental from the letting of fixed property is less than R30,000 (and you do not carry on a business) that you don’t need to file provisional tax returns. In other words, even if your income from freelancing is under R30,000 you still need to file provisional tax returns.
Withdrawals from tax-free savings explained
Q: Can you ever withdraw the growth in a tax-free savings account without reducing your annual and lifetime limits? How do my investment company and Sars decide if I am withdrawing what I contributed or from the investment growth? — Saver, via e-mail
A: Denver Keswell, senior legal adviser at Nedgroup Investments, replies:
Withdrawals do not result in a reduction of either your annual or lifetime caps. So it doesn’t matter whether your withdrawal is part of your growth or capital. Only contributions reduce your contribution caps. The problem that arises is that you effectively have “one bite of the cherry” in that every contribution reduces both your caps (annual and lifetime). If you make any withdrawals you are not able to replenish your reduced caps. It is for this reason that we say that even though tax-free investments is technically liquid, to maximise your tax benefits you want to remain invested for as long as possible.
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