We receive many queries from confused taxpayers who are disappointed to see their tax refunds are smaller than the refund received last year. Often, on the surface, their income and expense situation appears unchanged, so how can this be?

If you are one of these unhappy taxpayers, read on to see some common reasons why your tax refund could be less than last year.

Carried forward retirement contributions

This one is not obvious at all and confuses many taxpayers. If you contributed towards retirement savings via a Pension, Provident or Retirement Annuity then when you look at your ITA34 assessment issued by SARS after submitting your tax return you will see a 4029 source code.  Scroll down to the section ‘Retirement Annuity Fund Contributions’ (source code 4029) and you should see your current year contributions here, split between the different types of retirement funds (i.e. Pension, Provident and Retirement Annuities). Compare the amounts here to the amounts on your prior year’s ITA34 assessment.  Look in particular for a line item with the description ‘amount brought forward from previous year’ – if there is an amount last year with this description, but this year it’s nil, then this may explain your refund discrepancy.

The retirement laws changed in 2016 and retirement deductions allowed increased to 27,5% of taxable income. Read our blog for further details here.  This larger deduction limit meant that any excess contributions over and above the previous year’s limits would’ve been carried forward and deducted in 2016 and 2017, which would’ve resulted in the prior year’s larger refund. In the current year, however, the nil ‘amount brought forward from previous year’ indicates that your excess retirement contributions from prior years were all fully deducted (i.e. used up). Therefore this year’s retirement deduction relates to your current year contributions only, and is therefore less, which would result in the smaller refund.

Worked for less than year

Many taxpayers tell us that they worked at the same place this year and last year and earned similar income and benefits. However, last year they received a refund and this year they received nothing. How can this be?

It often transpires that in the previous tax year the taxpayer didn’t work for the full twelve months of the year. If this is the case, it is very likely that the taxpayer would be due a refund. Please read our blog here for further clarification.

Changed employer during the year

If you happened to change jobs during the year or suddenly earned money from somewhere else outside of your work then this could also affect your refund.

Working for two employers could mean that each employer happened to under deduct PAYE. If this is the case, then when it comes to submitting your tax return you would need to pay more tax. If you usually get a refund, then it would be smaller this year. 

Bear in mind that earning extra income also means your refund will be smaller, as this needs to be taxed as well.

Travel Allowance

If you receive a taxable travel allowance from your employer, it will be coded to 3701 or 3702 on your IRP5.  A portion of your travel allowance (usually 80%) is treated as a fringe benefit and is taxed each month with your salary. This is because there is an assumption that 80% of your mileage is for personal reasons. It is then up to you to record your actual mileage in a logbook and claim a travel deduction when you submit your tax return. If you travel often for work, it is likely that you will receive a refund of some, or all, of the tax you paid on your travel allowance fringe benefit. 

Besides the amount of business mileage, another factor that affects the size of your travel deduction is the method used for the calculation. You can claim based on actual costs or use the ‘deemed costs’ method. See our travel calculator here to work out the most tax efficient method to use. 

So, it follows that if you travelled less for business this year compared to last year, your travel deduction will be less and therefore your refund due to your travel allowance will be smaller.

Also, if you used the actual cost method this year but ‘deemed costs’ last year (or vice versa) this could also impact your travel deduction, and hence your refund. And finally, if you kept a logbook last year, but not this year for some reason, then your entire travel deduction will be disallowed this year, which would of course explain the smaller refund too! 

Medical Expenses 

Another area that may affect your refund is the medical expenses you paid for the year. Have a look at your ITA34 and scroll down to the tax rebates section.  Assuming you belonged to a medical aid, you will see a ‘Medical Schemes Fee Tax Credit’. This is a fixed amount per month based on the number of dependents on your medical aid. This part of the medical tax credit is pretty straight-forward - assuming you belonged to a medical aid for the full year, with the same number of dependents, then this credit should remain similar to last year and it won’t affect your tax refund.

However, there is a second part to the medical tax credit (called the ‘Additional Medical Expenses Tax Credit’), which is calculated by way of a complicated formula based on your ‘out-of-pocket’ medical expenses.  This part of the medical tax credit is often misunderstood. What many people do not realise is that you need to spend quite a significant amount on medical expenses (roughly more than 7, 5% of your taxable income) that is not refunded by your medical aid in order to receive a tax credit here. Have a look at this line item on your assessment this year compared to last. Do you see an amount last year with a smaller amount (or zero) this year? If yes, this could be the reason for your smaller refund!

Please read our blog on medical expenses here for further details around how the medical tax credit is calculated and what you can claim. You can also make use of our Medical Aid Credits Calculator.