If you earn money through savings, fixed deposits, or other interest-bearing investments in South Africa, you might be wondering how the South African Revenue Service (SARS) taxes this income.
In South Africa, interest income is considered part of your taxable income, and SARS applies specific rules when determining how much tax you owe. The tax treatment depends on several factors; your residency status, the source of the interest, and whether the interest qualifies for any exemptions.
Here’s a breakdown of how SARS calculates tax on interest earnings and what you need to know to stay compliant.
What Qualifies as Taxable Interest?
SARS treats the following types of interest income as taxable for most individuals:
- Interest from bank savings accounts
- Fixed deposits and notice accounts
- Money market accounts
- Interest from government bonds or corporate debentures
- Foreign interest (for South African residents)
If you’re earning interest from any of these sources, you are required to declare it on your tax return.
Residency Status: Resident vs. Non-Resident
SARS applies different rules based on your tax residency:
- South African residents are taxed on worldwide income, including both local and foreign interest.
- Non-residents only pay tax on interest earned within South Africa.
SARS uses a combination of the physical presence test and ordinarily resident test to determine your tax status. If you’re unsure, it’s wise to check your residency with a tax practitioner or SARS directly.
Exempt Interest Thresholds
The good news is that SARS provides tax exemptions on interest income up to a certain annual limit:
- R23,800 per year for individuals under 65
- R34,500 per year for individuals 65 and older
Any interest earned above these thresholds is added to your taxable income and taxed according to your personal income tax bracket.
Tip: Interest earned from certain SA government bonds and retail savings bonds may also be exempt from tax under specific conditions.
Can You Deduct Any Expenses?
In some cases, you can deduct expenses directly linked to earning your interest income. For example:
- Management fees paid to a financial advisor or investment platform
- Interest on loans used to fund an investment
However, these deductions are not automatic and are subject to SARS approval and specific guidelines. Always keep your receipts and records.
How Is Interest Income Taxed?
South Africa uses a progressive income tax system, so the tax rate on your interest depends on your total income for the year. Here’s how it works:
- Your taxable interest (after exemptions) is added to your total income
- SARS applies the personal income tax rates for that year
- The more you earn, the higher the rate you’ll pay on that income
Current tax brackets and rates are updated annually in the National Budget, so refer to the latest tax tables on the SARS website or speak to a registered tax practitioner.
How to Report Interest to SARS
You must declare all interest income on your annual tax return (ITR12) using the correct source code:
- 4201 – Local interest (South African sources)
- 4218 – Foreign interest (for SA residents)
You can submit your return via:
- The SARS eFiling platform
- The SARS MobiApp (ideal for mobile users)
- Your nearest SARS branch (by appointment)
Failure to disclose interest income could lead to penalties or audits, so it’s important to be accurate and transparent.
Final Thoughts
Understanding how SARS calculates tax on interest helps you:
- Avoid unexpected tax bills
- Maximise available exemptions
- Stay compliant with South African tax law
Whether you’re earning R500 or R50,000 in interest, it’s your responsibility to report it. If your interest income is significant or comes from multiple sources, it’s advisable to speak to a tax advisor for personalised guidance.
Need more info?
Visit the official SARS Interest Tax Guide or consult a registered tax professional for up-to-date advice.