Provisional Tax Time

WHO IS A PROVISIONAL TAXPAYER?
 
A provisional taxpayer is defined in paragraph 1 of the Fourth Schedule of the Income Tax Act (“Act”) as:

1. Any person (other than a company) who derives remuneration from a person that is not registered for employees’ tax as an employer.
2. Any person (other than a company) who derives income which is not remuneration (as defined).
3. Any company.
4. Any person notified by the Commissioner that he/she is a provisional taxpayer.

 
The following are excluded from the definition of a provisional taxpayer:

1. A natural person who does not derive any income from the carrying on of any business if:
   1. The taxable income of that person for the year of assessment does not exceed the tax threshold; or
   2. The taxable income of that person for the year of assessment which is derived from interest, dividends, foreign interest, rental and any remuneration from an employer not registered for employees’ tax does not exceed R30,000

2. Any tax exempt public benefit organization (“PBO”)
3. Any tax exempt recreational club
4. Any body corporate, share block company or association of persons contemplated in section 10(1)(e) of the Act
5. Non-resident owner or charter of any ships or aircraft under section 33 of the Act
6. A small business funding entity
7. A deceased estate
8. Any entity defined in section 30B of the Act.

 
CALCULATION OF ESTIMATED TAXABLE INCOME
 
There are 2 categories of taxpayers to which different rules apply. Therefore, it is imperative that you make the correct determination as to which category you fall into.
 

1. BELOW R1 MILLION

If your final taxable income (including any capital gain) will be less than R1 million, you are entitled to utilise the basic amount (see below) without the concern of any penalty being levied.
 
If you opt to use an amount lower than the basic amount and your final taxable income on assessment is not within 90% of the estimate submitted on your 2^nd provisional return, a penalty of 20% will be imposed on the difference between the estimated tax and 90% of the actual tax less PAYE and provisional tax paid in that tax year.
 
Important to note, if you are using an amount lower than the basic amount, capital gains must be included in the estimate.
 
BASIC AMOUNT
 
The basic amount is the taxable income, excluding capital gains and lump sums, of the last assessed tax year, provided the assessment is issued at least 14 days prior to the submission of the provisional tax return. If that assessment is for a tax year older than 18 months, the basic amount is increased by 8% per year.
 

2. ABOVE R1 MILLION

If your final taxable income will be R1 million or more, you are obliged to submit an estimate of your taxable income which must be within 80% of the final taxable income.
 
Where your estimate falls below 80% of the actual taxable income on assessment a penalty of 20% will be imposed on the difference between the estimated tax and 80% of the actual tax less PAYE and provisional tax paid in that tax year.
 
Important to note, capital gains must be included in the estimate as these will be included in the final taxable income.
 
PAYMENT OF PROVISIONAL TAX
 
The second provisional tax payment is payable by the last business day of the tax year (28^th February 2023). If payment is made late, a penalty of 10% of the amount paid late will be levied.
 
NON SUBMISSION OF A RETURN
 
If a provisional taxpayer submits a return later than 4 months after the last day of the year of assessment (28 February 2023), the taxpayer is deemed to have submitted a nil return. This means that the taxpayer on assessment will incur a penalty of 20% for the underestimation of provisional tax.
 
Contact your local Moore firm here.