Let’s take a look at Provisional tax, who needs to register therefor and briefly touch on the due dates for payments to be made by a Provisional taxpayer, as is required by the South African Revenue Services (“SARS”).
|Provisional tax return||Provisional tax return Return to be submitted to SARS (IRP6), bi-annually on 28 February and 31 August, calculating the provisional tax liability of a taxpayer, based on an estimated taxable income of that financial year.|
|Income tax return||Final return (IT12) to be submitted to SARS, on a yearly basis, calculating the tax payable or refundable based on your taxable income of that financial year.|
|Provisional tax Payment||Payment due to SARS based on the estimated tax liability which was calculated and submitted through the Provisional tax return.|
|Income Tax Payment||Payment due to SARS based on the actual tax liability which was calculated and submitted through the Income tax return.|
What is Provisional tax?
Provisional tax is not a separate form of Income Tax, but rather simply a way of paying your Income Tax to SARS in bi-annual tranches, as opposed to sitting with a tax liability when submitting your Income tax return to SARS.
Upon assessment of the final Income tax return, the Provisional tax Payments made to SARS in advance, will be off set against the amount due to SARS in respect of your Income tax return for the relevant year of assessment.
Provisional tax Payments is therefore an advance or prepayment of a Taxpayer’s normal Income Tax due to SARS in a specific year of assessment.
Who should register as a provisional taxpayer?
Any person who receives income (or to whom income accrues) other than a salary, is regarded as a provisional taxpayer. Income would typically include receival of rental income, interest income from investments or any other income received form the carrying on of any trade.
A taxpayer, earning income other than a salary, will not be required to register as a provisional taxpayer, as long as –
⦁ his taxable income for the year of assessment will not exceed the annual tax threshold, or
⦁ his taxable income which is derived from interest, dividends, foreign dividends and rental from the letting of fixed property will be R30 000 or less for the year of assessment.
Most salary earners are therefore non-provisional taxpayers if they have no other sources of income.
Companies, trusts and joint ventures automatically fall into the provisional tax system, irrespective of their source of income.
Provisional tax payments
The provisional tax liability is based on your taxable income for the tax period (i.e. 01 March to 28 February). The provisional tax liability is split into two payments. The first provisional tax payment is due by 31 August (mid tax season) and the second provisional tax payment is due by 28 February (end of tax season).
There is an optional third provisional tax payment at the end of September (seven months after the close of the financial year), in the event that the amount paid during the first and second provisional tax period is less than the income tax payable to SARS for the financial year.
The above dates can be outlined on a timeline as follows:
Interest and Penalties
It is important to note that your second provisional tax payment is the most important payment due and payable to SARS, as SARS can impose harsh penalties and interest on taxpayers that fail to submit their provisional tax return, fail to pay the second provisional tax to SARS in a timely manner or declares a lesser amount of income to SARS in relation to the declaration made under the final income tax return.
Two penalties are potentially levied in respect of the second period, namely –
⦁ a penalty for the late payment of provisional tax; and
⦁ a penalty for the underpayment of provisional tax as a result of underestimation of taxable income.
Penalty for late payment:
Late payments are subject to a penalty of 10% of the total tax amount payable.
The penalty amount is different for taxpayers whose taxable income is more than R1 000 000 than those earning less than R1 000 000.
⦁ Taxable income of R1 000 000 or less
If your estimate in your second provisional tax return turns out to be less than 90% of your actual annual taxable income, a penalty will be imposed by SARS.
The penalty is calculated at 20% of the difference between the normal tax payable on your estimate and the lessor of:
⦁ tax on 90% of your taxable income
⦁ the basic amount issued by SARS.
⦁ Taxable income of greater than R1 000 000
If your estimate in your second provisional tax return turns out to be less than 90% of your actual annual taxable income a penalty will be imposed by SARS.
The penalty is calculated at 20% of the difference between the normal tax payable on your estimate and tax calculated on 80% of your actual taxable income.
If you are uncertain about whether to register as a provisional taxpayer or how to register, please give us call at The Finance Man and we will answer all your questions.
We end this post with a quote from Robert T. Kiyosaki, the author of the very successful book Rich Dad, Poor Dad:
“The single most powerful asset we have is our mind.
If trained well, it can create enormous wealth.”
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This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.