Individuals and Trusts
This FAQ relates to both individual and trust taxpayers, therefore, please read the reference ‘you’ to imply you as taxpayer or you as representative taxpayer in your capacity as Trustee of a Trust.
WHAT IS PROVISIONAL TAX?
Provisional tax is not a new nor an additional tax imposed on a taxpayer. Rather, it is an advanced payment towards your income tax liability, with these advanced payments serving as tax credits to offset your final calculated income tax liability on assessment.
DO I QUALIFY AS A PROVISIONAL TAXPAYER?
The term provisional taxpayer includes:
- If you derive income other than remuneration such as, trade or business income, rental income and return on investment income both from a local and foreign source
- If you derive remuneration from an employer that is not registered for employees’ tax (e.g. an embassy is not obligated to register as an employer for employees’ tax purposes or a foreign employer remunerating employees for rendering services in South Africa) and
- A person who is notified by the Commissioner that he or she is a provisional taxpayer
The following taxpayers are excluded from the definition of provisional taxpayer:
- If you do not qualify as a provisional taxpayer under the above provisions and you derive a capital gain on the disposal of an asset during the year of assessment, then the receipt of the capital gain does not render you a provisional taxpayer
- Directors of private companies and members of close corporations no longer automatically qualify as provisional taxpayers due to their designation
- Approved public benefit organisations (PBOs) and recreational clubs
- Non-resident owners or charterers of ships and aircraft who are already required to make payments under the tax legislation and
- A deceased estate
Furthermore, an individual is excluded from the provisional taxpayer definition if you do not derive income from a trade and during the year of assessment your:
- Taxable income does not exceed the tax threshold (for the 2021 tax year the thresholds are: R83 100 for individuals under the age of 65 years, R128 650 for persons 65 years of age to below 75 years of age and R143 850 for individuals 75 years of age and older) or
- The combined taxable income from the following sources does not exceed R30 000, namely interest, dividends, foreign dividends, rental income from letting fixed property and remuneration from an employer that is not registered for employees’ tax
WHAT TO DO IF YOU FALL INTO ONE OF THE QUALIFYING CATEGORIES?
You, as taxpayer, carry the obligation to determine whether you qualify as a provisional taxpayer and must apply for registration as such within 21days of becoming such.
If you are unsure whether you qualify to register as a provisional taxpayer and in order to mitigate the risk of any penalties or interest on non-compliance the BDO Tax Team will gladly guide you through the decision-making process.
WHEN AND HOW YOU NEED TO REPORT AND PAY?
Provisional tax payments are calculated on estimated taxable income. Generally, a provisional taxpayer is required to make two provisional tax payments, one six months into the year of assessment and one at the end of the year of assessment. A further voluntary payment can be made after the end of the year of assessment. This payment is made to reduce or avoid the interest charge should the first and second provisional tax payments not cover the full tax liability on assessment.
- The first provisional tax period ends 31 August
- The second provisional tax period coincides with the end of the year of assessment, i.e. 28/29 February
- The voluntary provisional tax payment is due seven months following the February year of assessment, i.e. 30 September
HOW IS MY PROVISIONAL TAX LIABILITY CALCULATED?
The estimate on which your provisional tax liability is calculated should be the total taxable income you expect to derive during the relevant year of assessment (excluding retirement fund lump sum benefits/ severance benefits).
For the first provisional tax period you can calculate the estimate of taxable income using actual figures or you may accept the SARS basic amount. Only 50% of your provisional tax liability is settled at 31 August.
For the second provisional tax period you can calculate the estimate of taxable income using actual figures or you may accept the SARS basic amount where your taxable income in respect of the relevant year of assessment will be equal to or less than R1 million. Where your taxable income will be more than R1 million you must calculate the estimate of taxable income using actual figures. The calculated provisional tax liability less your payment made in respect of the first provisional tax period is settled at 28/29 February.
WHAT IS THE ‘BASIC AMOUNT’?
The basic amount is the taxable income, as assessed by SARS, for the latest preceding year of assessment. It excludes any taxable capital gain and taxable portion of a retirement fund lump sum/severance benefit and is increased by 8% per year if the estimate is made more than 18months after the end of the latest preceding year of assessment.
HOW DO I SETTLE MY PROVISIONAL TAX PAYMENTS?
Payments can be made at banks, via eFiling and via electronic funds transfer (EFT). If you opt to make payment by EFT electronically you should be aware of your bank’s cut-off times to ensure the clearance period is before the actual due date of the payment.
To ensure that SARS correctly allocates your payment you must use the 19-digit payment reference number and the SARS beneficiary ID/account reference number which is reflected on the provisional tax return.
For more information visit SARS' website: www.sars.gov.za or contact your nearest SARS branch.
WHAT PENALTIES CAN BE IMPOSED IN RESPECT OF MY PROVISIONAL TAX OBLIGATIONS?
If you pay your provisional tax liability late SARS will charge you interest at the prescribed rate and impose a penalty of 10% on the liability amount.
If you have under estimated your taxable income for your second provisional tax period and have accordingly under paid provisional tax SARS will similarly charge you interest and will impose a penalty of 20% where:
- your taxable income as finally assessed by SARS is R1 million or less and your estimate was less than 90% of this amount and the estimate was less than the basic amount or
- your taxable income as finally assessed by SARS exceeds R1 million and your estimate was less 80% of this amount
DO I QUALIFY FOR COVID-19 TAX RELIEF IN RESPECT OF MY PROVISIONAL TAX?
SARS implemented COVID-19 tax relief measures in respect of provisional tax, aimed at assisting qualifying taxpayers to alleviate cash flow problems.
A qualifying taxpayer is a company, trust, and individual that:
- Conducts trade
- The gross income does not exceed R100 million during the year of assessment starting on or after 1 April 2020 to 31 March 2021
- 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 and
- Is compliant with its/his/her tax obligations
A micro business may also qualify for this relief, for further details please contact our office.
What tax relief do I qualify for:
- The deferral of a portion of the payments of the first and second provisional tax liability to SARS, without SARS imposing penalties and interest for the late payments of the deferred amount
- The first provisional tax payments due from 1 April 2020 to 30 September 2020 will be based on 15% of the estimated total tax liability
- The second provisional tax payments due from 1 April 2020 to 31 March 2021 will be based on 65% of the estimated total tax liability
- The remaining 35% of the provisional tax liability is payable by the third provisional tax payment