Submission of a provisional tax return during Covid-19
25 August 2020
It is important for taxpayers with a February year end to take note of the August 31st provisional tax deadline.
In practice we are seeing a decrease in the estimated taxable income figures in respect of the 2021 year of assessment. Practically, this would lead to the taxpayer having a lower than basic taxable income estimate in respect of the 202001 first provisional tax submission.
Paragraph 19(1)(c) of the Fourth Schedule to the Income Tax Act states that the amount of the estimate provisional tax calculation cannot be less than the basic amount unless circumstances of the case justify the submission of an estimate of a lower amount. The basic amount for the provision of this paragraph is derived from the latest filed tax return.
This provision does not define what circumstances would warrant a lower than basic taxable income estimate, however it would be unreasonable for a SARS official to ignore the impact of the current economic crisis on taxpayers and their ability to generate taxable income.
Taxpayers who find themselves unable to meet their provisional tax obligations and have a gross income of R 100 million or less for the year of assessment ending on or after 1 April 2020 but before 1 April 2021 can opt for a deferral of a portion of the payment of the first and second provisional tax liability to SARS, without SARS imposing penalties and interest for the late payment of the deferred amount as follows:
- The first provisional tax payments due from 1 April 2020 to 30 September 2020 will be based on 15 percent of the estimated total tax liability, while the second provisional tax payments due from 1 April 2020 to 31 March 2021 will be based on 65 percent of the estimated total tax liability;
- Provisional taxpayers with deferred payments will be required to pay the remaining 35% tax liability when making the third provisional tax payment in order to avoid interest charges on assessment.
In order to qualify for the provisional tax Covid-19 relief the following requirements must be met:
- the gross income must not include more than 20% in aggregate of interest, dividends, foreign dividends, rental from letting fixed property and any remuneration received from an employer –
- if the rental of fixed property is the primary trading activity and the rental income is substantially the whole of the gross income, disregard this exclusion test; and
- for purposes of a partnership, use the aggregate partner’s gross income from the partnership; or
- is a qualifying micro business.
- The taxpayer must be fully tax compliant.
The submission must document the Covid-19 circumstances relating to the lower estimate in the event that SARS wish to raise issue with the 2021 provisional tax submission under paragraph 19(3) of the Fourth Schedule to the Income Tax Act.
Taxpayers are urged to be aware that SARS cannot simply disregard the serious financial hardship that they have faced when the attempting to reach SARS’ revenue collection targets during these unprecedented times.
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