Dear reader,

Are you a provisional taxpayer? Or perhaps your company – with a February financial year-end – is a provisional taxpayer?

Then take note: The deadline for your second provisional tax return looms. In fact, you have until 28 February to submit the return. If you have any doubts or lingering questions about the requirements of the individual provisional taxpayer, click here to read a Tax Bulletin explaining everything.

SARS has been lenient, until now

Last year was the first year the new provisional tax rules applied and SARS was lenient in that respect. All indications are that this year SARS will apply the letter of the tax law. If you’re a provisional taxpayer I suggest you carefully study the rules below.

Don’t only rely on your tax consultant or auditor to make the submission for you. Regrettably, I dealt with a few cases last year where the tax consultant submitted the client’s provisional tax on the so-called “basic amount”, while the client was actually earning a taxable income in excess of the R1 million threshold amount.

If your taxable income (or that of your business) is more than R1 million, be as accurate as possible in calculating and declaring your provisional tax. If you over-estimate and over-pay on your taxable income, resulting in SARS owing you a refund, you can expect a query from the SARS audit team.

If your income is less than a R1 million, and your taxable income has substantially decreased from last year, you probably want to claim back some tax money from SARS….

But before you do anything, read these provisional tax rules:

Tier one – taxpayers with a taxable income <R1m:

• Your estimate can be based on the lesser of the basic amount as indicated on the IT34 for the last year assessed, OR 90% of your actual taxable income. Where the last assessment isn’t current, increase the basic amount by 8% per annum. For example, if you’re calculating the provisional tax liability for the 2010/01 period but your last year of assessment was in 2008, then you’ll add 8% to the taxable income for 2009 and 2010 (8%x2);
• If your estimated taxable income calculated doesn’t reach 80% of your actual taxable income, SARS will apply an automatic penalty of 20% of the shortfall;
• SARS allows for the penalty to be reduced or waived if you can prove that the estimated taxable income was seriously calculated (taking into account all the relevant factors), rather than being deliberately or negligently understated.

Tier two - taxpayers taxable income >R1m:

• Your estimated taxable income must be at least 80% of actual taxable income for the financial year. 

If your estimate falls short, SARS may impose a discretionary penalty of up to 20% of the shortfall if it’s not satisfied that the estimate was seriously calculated, or if you deliberately understated it.

Interest rules
In the instance that provisional tax is overpaid, interest will only accrue to you six months after the year end - except where the year-end is February. In this case, interest will only accrue to you seven months after the financial year-end. This means that you forfeit six or seven months’ interest as well as enduring the negative effect on your cashflow. This is why it’s so important for you to calculate your liability as accurately as possible.

The Practical Tax Loose Leaf will help you
If you need to brush up on your provisional tax know-how, refer to chapter P01 in your Practical Tax Loose Leaf. It covers all the details, with practical examples too.

Have a great week,

Marius Maritz,
Editor-in-Chief, Practical Tax Loose Leaf

P.S. if you’re not yet subscribed to the Practical Tax Loose Leaf, what are you waiting for – the SARS audit team to arrive at your door, looking smug? Click here to subscribe today!

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