Lesson Notes By Weeks and Term v5 - Grade 11

Lesson Video

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Performance objectives

• Calculate gross salary, taxable income, and net salary.
• Interpret an IRP5 tax certificate.
• Calculate employee and employer UIF contributions.
• Use SARS tax tables to determine PAYE tax.
• Explain the concept of tax brackets.

Lesson summary

This week, we delve into the essential aspects of personal finance in South Africa, focusing on tax, Unemployment Insurance Fund (UIF), and salary calculations. Understanding these concepts is crucial for managing your finances effectively, whether you're earning a salary, starting a small business, or simply making informed financial decisions. Knowing how your salary is affected by deductions like tax and UIF allows you to budget properly and plan for the future.

Furthermore, understanding the importance of tax contributions ensures you are aware of your role in contributing to the development and functioning of our country.

Lesson notes

2.1 Gross Salary vs.

Net Salary Gross Salary: This is your total earnings before any deductions are made. It is the amount stated in your employment contract or salary agreement.

Net Salary: This is your take-home pay – the amount you actually receive after all deductions (tax, UIF, medical aid, pension, etc.) have been subtracted from your gross salary. 2.2 Understanding Deductions Several deductions can affect your gross salary.

The most common ones are: PAYE (Pay-As-You-Earn)

Tax: This is income tax deducted by your employer and paid directly to the South African Revenue Service (SARS) on your behalf. The amount of PAYE depends on your taxable income and the applicable tax brackets for the year.

UIF (Unemployment Insurance Fund): This provides financial assistance to workers who become unemployed, are unable to work due to illness, maternity leave, or adoption leave. Both the employee and the employer contribute to UI

F. Pension/Provident Fund: This is a retirement savings scheme where contributions are made regularly to provide income during retirement.

Medical Aid: This covers medical expenses. Employee contributions are usually deducted from their salary. 2.3 Taxable Income Taxable income is the portion of your income that is subject to income tax. It is calculated by taking your gross income and subtracting certain allowable deductions, such as contributions to retirement funds (up to a certain limit) and medical aid contributions (subject to specific rules).

However, for simplicity at this grade level, we'll often assume taxable income is equivalent to gross income for many examples. 2.4 PAYE Tax Calculation & SARS Tax Tables SARS (South African Revenue Service) provides annual tax tables that specify the tax rates for different income brackets. These tables are crucial for calculating PAYE tax.

Here's how to use them: Determine your Taxable Income: As stated before, for many examples, we assume this is the same as gross salary.

Find the Correct Tax Bracket: Locate the income bracket in the tax table that your taxable income falls within.

Apply the Tax Rate: The tax table will specify a fixed amount of tax payable plus a percentage of the income exceeding the lower limit of the tax bracket. Example of a simplified tax table (

Note: This is for illustrative purposes only. Use the official SARS tax tables for accurate calculations.) | Taxable Income (R) | Tax Rate | | ------------------- | -------------------------------------- | | 0 - 90,000 | 18% of taxable income | | 90,001 - 180,000 | R16,200 + 26% of income above R90,000 | | 180,001 - 250,000 | R39,600 + 31% of income above R180,000|