Your applicable tax bracket is calculated based on all of your income streams added together.

Shivi writes: “I earn a monthly salary from my job, and I also receive a monthly amount of R14 000 which is from my late father’s retirement policy. Tax gets automatically deducted each month off both my salary and the R14 000, and I receive the net amount after the deductions.

“However, SARS says I owe them R45 000 in tax. I was advised that this is because the monthly amount of R14 000 puts me in a different tax bracket. Does this not mean that I am being taxed twice?”

Shivi’s question describes a common issue experienced by people who have more than one income stream. The issue arises because of the way that the South African income tax system is structured.

South Africa has what is called a “progressive tax system”, where as you earn more, you pay a higher percentage of your additional income in tax.

Your employer would tax your salary based on the assumption that it is your only income. If, as an example, your salary was R30 000 a month (R360 000 a year), you would fall into the 26% tax bracket and your employer would calculate and deduct your tax accordingly.

When the retirement fund pays out the R14 000 per month, they have no additional information regarding your other sources of income. They would assume that the R14 000 per month (R168 000 a year) is your only income and that you therefore fall into the 18% tax bracket. They would deduct tax based on that rate.

Higher tax bracket

However, if you add the two incomes together, you effectively have a total income of R528 000 per annum, which puts you in the 36% tax bracket. SARS knows about both incomes, and would now calculate your tax based on the 36% tax rate, which would be higher than the tax you paid separately on your salary and your father’s pension.

You would therefore have a shortfall between the tax already paid upfront by your employer and the retirement fund, versus your total tax obligation to SARS.

If you are earning multiple incomes, it is important to calculate what your total tax liability would be and to keep some funds aside for tax purposes. You can use an online resource like TaxTim to calculate what your tax obligations would be based on the sum of your various income streams.

To read more about how to calculate your tax, see this article (note that the tax tables in that article are for the 2017-18 tax year).

To view the 2023-24 SARS tax brackets, click here.

A version of this article first appeared in City Press.