PROVISIONAL TAX: THE NEED-TO-KNOW

The phrase is enough to give the many tax payers who fall in the provisional tax category sleepless nights. If you've ever rolled around at night due to the ins and outs of provisional tax, this article is for you!

Here is a breakdown of what provisional tax is, who it applies to and when it is payable

 
What is provisional tax?

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Provisional tax is paid by individuals who earn income other than a salary or traditional remuneration paid by an employer. This is because they don't pay tax via PAYE, like salaried  employees.

It is not separate from income tax and is a method of paying your income tax liability in advance versus having to pay one lump sum due to SARS on assessment when you submit your Income Tax return (ITR12). When your final assessment is issued, the provisional payments will be off- set against the tax liability for normal tax.

Am I a provisional tax payer?

Any person who receives income (or to whom income accrues) other than remuneration, is categorised as a provisional taxpayer.

If you receive exempt income, you do not fall within the category of a provisional taxpayer.

This  includes:

• If you receive interest of less than R23 800 if you are under 65; or
• If you receive interest of less than R34 500 if you are 65 and older; or
• You receive an exempt amount from a tax-free savings account.

Note: Companies automatically fall into the provisional tax system. There is no longer a  registration or deregistration process to be a provisional taxpayer. The onus is on the  taxpayer to determine if her or she is liable for provisional tax, and to request and submit  an IRP6 return via eFiling.

When is provisional tax payable?

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First period
The 1st payment is due within 6 months from the commencement of the year of assessment.

E.g: most individual taxpayers’ year of assessment starts on 01 March. This means the 1st  provisional payment is due 6 months later, on 31 August.
 
Second period
The 2nd payment is due on the last day of the year of assessment.

E.g.: most individual taxpayers’ year of assessment starts on 01 March. This means the 2nd  provisional payment is due on 28 February of the following year.
 
Penalties
 
SARS will  impose penalties for under estimation of provisional  tax. Where the basic amount (provided by SARS) is amended by the taxpayer:

Taxable income less than R1 million should be estimated within 90% of the actual amount.
Taxable income above R1 million should be estimated within 80% of the actual amount.

Late payments are subject to a 10% penalty and interest.

Book a consultation with us if you need a hand with your estimations.

What is the basic amount?

The basic amount is the taxable income, with certain exclusions, of the last year assessed (by  SARS), in respect of which the return was submitted and assessed not less than 14 days before  the date of submission of the provisional tax estimate.
 
The amount is increased by 8% per year if the last assessment (from SARS) is more than 18  months prior.

Note: The basic amount may only be used if estimated taxable income is less than R1M

Still struggling?

We don't blame you!
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That's why we offer this downloadable PDF with everything you need to know about tax  compliance, planning and administration for the latest tax year.

And if all of it is still gibberish to you, please get in touch!
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HUYSAMEN WESTRAAD INC.

Based in the Vineyards Office Estate in Bellville, our team of chartered  accountants  and registered auditors are led by partners Gilbert Westraad and Tiaan Hoon, providing expert tax & accounting advice and practical solutions to our clients in the Cape Peninsula and surrounding areas, since 1987.

We offer various tax services for companies, trusts and individuals (such as sole proprietors or self-employed  individuals), ensuring compliance with all the applicable tax laws, and providing  peace of mind in the knowledge that you are compliant.