Provisional Tax 101: What you need to know
With the 2018 tax filing season having come and gone, several taxpayers got in contact with us after receiving a nasty surprise on their income tax assessment.
Taxpayers who confidently filed their returns as non-provisional taxpayers were subsequently informed of their failure to register as provisional taxpayers and were punished for such failure by the imposition of a penalty to the value of 20% of their tax liability.
As tax specialists, we find the taxpayer more than ever before are asking the questions:
• “What is provisional tax?
• “Who is a provisional taxpayer?”
What Is Provisional Tax?
In layman’s terms, provisional tax is merely a prepayment of tax for the tax year based on an estimate of the taxpayer’s taxable income.
When looking from a natural person’s perspective, provisional tax is mainly aimed at the collection of a person’s normal tax liability due to non-salary income or multiple sources of income. In a nutshell, taxpayers who derive income that is not subject to PAYE are provisional taxpayers.
When Should You Register as A Provisional Taxpayer?
- If you fall under any one of the following categories, it would be a good idea to register as a provisional taxpayer:
- You receive salary income from foreign employers and do not qualify for the foreign employment income exemption under section 10(1)(o)(ii) of the Income Tax Act;
- You receive salary income from employers not registered for PAYE;
- You are an independent contractor or a sole proprietor;
- You receive salary income from multiple employers;
- Your income does not constitute a salary, i.e. income not subject to PAYE. This typically includes but not limited to rental income earners or interest income which is more than R23 800 per annum (for persons younger than 65 years) or interest income which is more than R34 500 per annum (for persons aged 65 years or older);
- If you have a registered company and/or close corporation; or
- When SARS notifies you, by way of your statement of account, that you are a provisional taxpayer.
Important Deadlines For Provisional Tax Payments
There are two compulsory provisional tax payments per tax year, namely first provisional tax payment and second provisional tax payment. The first provisional tax payment covers the first 6 months of a natural person’s tax year (i.e. 1 March to 31 August each year).
The second provisional tax payment covers the second 6 months of a natural person’s tax year (i.e. 1 September to 28 February each year). It is of utmost importance for a person’s first and second provisional tax payments to reflect in SARS’ bank account by 31 August and 28 February, respectively.
Failure to register and file as a provisional taxpayer?
SARS Gives No Quarter
Taxpayers who fail to register as provisional taxpayers and de facto do not file provisional tax returns nor make provisional tax payments, are penalised by SARS on assessment.
This penalty is referred to as the underpayment penalty and amounts 20% of the tax liability due for the year of assessment in question. SARS will leave no stone unturned when it comes to revenue collection and will go as far as to prosecute non-compliant taxpayers, even prominent celebrities, as was observed with Bonang Matheba and Teko Modise during last year.
Be Prepared And Well-Informed
It is important to bear in mind that provisional tax is not a separate tax but rather an advance payment of a person’s tax liability for the relevant year of assessment.
Ergo, when SARS assesses a taxpayer subsequent to submission of an ITR12 personal income tax return, all provisional tax payments made during the year of assessment, parenthetically including PAYE, are deducted from the person’s tax liability for the year in determining the net amount payable by or refundable to the taxpayer.
Special care must be taken when calculating one’s tax liability to avoid any nasty surprises from SARS down the line.
The deadline for the second provisional tax returns submission and payments is 28 February 2019.
For expeditious assistance regarding your IRP6 provisional tax return and ITR12 income tax return, it is best to approach tax specialists to ensure optimal preparation of your provisional tax obligation.