Provisional Tax

Question 1

Who pays provisional tax?

Answer 1

Any person who falls into the definition of provisional taxpayer is required to register as provisional tax payer within 30 days of the date on which he becomes a provisional taxpayer.
Provision taxpayer is:
- any person who derives income which is not remuneration or an allowance or advance
- any company
- any person b notified by the Commissioner that he is a provisional taxpayer

Question 2

Who is exempted from be being a provisional taxpayer?

Answer 2

1. Person younger than 65 who does not derive income from carrying on of trade:
   
   • taxable income will not exceed the tax threshold; or
   • taxable income derived from interest, dividends or the rental from letting of fixed property does not exceed R20 000
2. Person over 65 who’s taxable income:
   
   • less than R120 000
   • not wholly/exclusively from trade
   • not received other than from remuneration, interest, dividend or rent

Question 3

What are the payments for provisional tax?

Answer 3

There are two compulsory payments per tax year:

• 1st payment covers the first 6months of the year of assessment (31 August 2011 for 28 February 2012)
• 2nd payment covers the last 6 months of the year of assessment : paid before the end of the year of assessment (28/29 February)
• Also one voluntary payment within 7 months of year of assessment ends (30 September)

Question 4

How do you calculate the 1st payment?

Answer 4

The amount payable is calculated on estimate of taxable income.

1) estimate the total expected taxable income for the year
2) calculating the tax payable on this taxable income
3) deduct rebates
4) dividing the tax payable by 2
5) deducting any employees tax paid for the first 6 months of the tax year as well as any foreign taxes which will qualify for rebate
6) paying the resulting difference to SARS

Question 5

What is a taxpayer’s basic amount?

Answer 5

A taxpayer’s basic amount is its taxable income in terms of its most recently received assessment (60days) less any taxable capital gains included therein and lump sum from funds.
The basic amount must be increased by 8% per year where the previous assessment is for a year which is more than one year before the current year.

Question 6

How do you calculate the 2nd payment?

Answer 6

1) tax must be calculated on total estimated taxable income (two-tier system is used)
2) deduct rebate
3) deduct any employees tax
4) deduct 1st payment
5) pay difference to SARS

Question 7

What is the two-tier system?

Answer 7

1) where actual taxable income for the year is R1 million or less the estimate of taxable income can be based on the lower of:
- the taxable income for the year (seriously calculated)
- the basic amount (adjusted by 8% per year)
2) where the actual taxable income for the year is more than R1 million. The estimate of taxable income must be based on a serious calculation of the taxable income

Question 8

What are the penalties for 1st payment?

Answer 8

1) underestimate:
- if the estimate is lower than basic amount but with prior approval there is no penalties
2) late submission:
- may impose penalty from R250 to R16 000
3) late payment:
- 10% of amount provisional tax that provisional taxpayer fails to pay
- interests at prescribed rate in amount not paid in full for the period that the amount remains unpaid

Question 9

What are the penalties for 2nd payment?

Answer 9

1) underestimate:
- where the actual taxable income is R1 million or less, to avoid the 20% additional tax, the 2nd payment must be at least equal to the tax on the lesser of:
a. Basic amount
b. 90% of actual taxable income for the year
If it is less than both of these amounts, there is a 20% penalty of (tax on the lower of the basic amount or the 90% of taxable income - tax on the actual estimate)
- where the actual taxable income for the year is more than R1 million, the taxpayer must seriously calculate his taxable income for the year, if the estimate is less than 80% of the actual taxable income, then the taxpayer will be liable for additional tax calculated as follow:
20% x (normal tax on 80% of actual taxable income - normal tax in second provisional tax estimate)
2) late submission
- penalty of 20% of the amount by which the normal tax payable exceeds the normal provisional tac paid to date
3) late payment
- interest at prescribed rate on the portion of the amount not paid in full for the period that the amount reminds unpaid
- 10% of amount of provisional tax that taxpayer fails to pay