Taxable income is the amount of income SARS assesses tax on for a tax year, after subtracting the deductions the law allows. It is the figure the annual tax tables turn into a tax liability.
What it means
Over a year, an employee's income is reduced by allowable deductions - qualifying retirement fund contributions up to the Section 11F cap, certain donations - to reach taxable income. PAYE withheld each period is, in effect, an instalment toward the tax this annual figure produces, which is why PAYE uses an annualised, pro-rated version of the same logic.
Where it fits in
Monthly PAYE works on the balance of remuneration; the year-end assessment works on taxable income. The two should broadly meet: if PAYE was deducted correctly, the assessed tax on taxable income leaves little to settle. The IRP5 reports the year's remuneration and deductions that build up to it.
Key rules
- Income less allowable deductions, assessed over a full tax year.
- The base the annual tax tables apply to in arriving at the tax liability.
- PAYE is the periodic instalment that pre-pays the tax on it.
- Retirement contributions are deductible only up to the Section 11F cap (27.5%, limited to a yearly rand cap).
