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. 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 first provisional tax returns submission and payments is 31 August 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.
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.
When During The Year Should Provisional Tax Be Paid To SARS?
There are three provisional tax payments dates throughout the year with the third payment being optional;
- First Provisional Payment: The first provisional tax payment must be made within six months of the start of the year of assessment, which for individual taxpayers is 31 August. Please be aware that PAYE needs to be taken into account for the provisional payment.
- Second Provisional Period: The second provisional payment must be made to SARS no later than the last working day of the year of assessment ending 28 February for individual taxpayers.
- Third Provisional Period: The third provisional payment is considered to be a voluntary payment and may be made within seven months after the year of assessment and should therefore reach SARS no later than 30 September.
What Penalties Can Be Levied on Provisional Returns?
- Penalties for late submission;
- Penalties for late payments; and
- Penalties based on the underestimation of your liability.
How To Avoid Provisional Tax Penalties?
- Provisional tax returns should be submitted on or by the last business day of August (first provisional return) and February (second provisional return) each year.
- Provisional payments should reflect in SARS’ provisional bank account no later than the last working day of August (first provisional return) and February (second provisional return).
- The estimated taxable income declared on the second provisional tax return should be between 80% – 90% of the actual taxable income for the year.
Please note that we can assist with special applications to avoid and/or waiver underestimation penalties and interest, but only before the taxpayer has paid the outstanding penalties.