PROVISIONAL TAX – WHAT IS IT AND DO I NEED TO SUBMIT A RETURN?

Some taxpayers are required to submit provisional tax returns as well as their annual tax returns to SARS. If your income comprises only a salary, or pension from which PAYE is deducted, you are not a provisional taxpayer and do not have to worry about paying provisional tax.

If, however, you receive an income from sources other than or in addition to your regular salary or pension, such as rental income, interest, business income or any other income on which you have not paid tax, you may need to submit a provisional tax return.

It is important to note that provisional tax is not a separate or additional tax to income tax. It is merely a method of paying your income tax liability in advance to ensure that you don’t have a large tax liability on the submission and assessment of your annual tax return. Provisional tax allows you to pay your tax liability in at least 2 amounts in advance during the year of assessment. These payments are based on your estimated taxable income. A third payment is optional after the end of the tax year, before the issuing of your assessment, if you have underestimated your income for any reason on the two provisional tax returns submitted to avoid an underestimation penalty.

Once you have submitted your annual return and an assessment has been issued by SARS, the provisional payments you have made will be off-set against your normal tax liability for the applicable year and you will pay in or receive a refund for the difference.

You are considered a provisional taxpayer if you are a natural person who receives income other than remuneration. Most salary earners are therefore not provisional taxpayers if they have no other sources of income. If, however, you receive exempt income as follows you are not a provisional taxpayer:

• Interest of less than R23 800 if you are under 65; or
• Interest of less than R34 500 if you are 65 and older or;
• You receive an exempt amount from a tax-free savings account.

All companies are automatically provisional taxpayers.

There are some instances where taxpayers are excluded from provisional tax and these are defined as follows –

• approved public benefit organisations or recreational clubs that have been approved by the Commissioner in terms of section 30 or section 30A;
• body corporates, share block companies or certain associations of persons that are exempt from tax;
• Non-resident owner or charterer of ships or aircraft;
• Any natural person who does not earn any income from carrying on any business – provided that person’s taxable income will not be more than the tax threshold
  (for 2023 tax year:
  – for taxpayers below age of 65 – R91 250;
  – age 65 to below 75 – R141 250. and
  – age 75 and over – R157 900);
  or the taxable income of that person (earned from interest, foreign dividends, rental from letting a fixed property and remuneration from unregistered employer) will not be more than R30 000;
• A small business funding entity;
• A deceased estate.

Your first provisional tax return, which is based on your first six months’ income of the current tax year, is due before the end of August 2022. Your second tax return for the period of 1 March 2022 to 28 February 2023 is due by the end of February 2023 and the amounts are calculated as follows:

First period due by 31 August

• Half of the total estimated tax for the full year
• Less the employees’ tax for this period (six months)
• Less any allowable foreign tax credits for this period (six months)

Second period due by end February

• The total estimated tax for the full year
• Less the employees’ tax paid for the full year
• Less any allowable foreign tax credits for the full year
• Less the amount paid for the first provisional period

Third period of assessment (optional)

• The total tax estimated payable for the full year
• Less the employees’ tax paid for the full year
• Less any allowable foreign tax credits for the full year
• Less the amount paid for the first and second provisional tax periods

It is important to note that some companies have year ends other than February and, in these instances, the first period ends six months into the tax year and the second period ends on the last day of the tax year.

There is no longer a registration or deregistration process to be a provisional taxpayer. The onus is on the taxpayer to determine if he or she is liable for provisional tax, and to request and submit an IRP6 return via e-Filing.

It is important to remember that, by submitting the returns and payments timeously and making use of accurate estimations, you can ensure a smooth submission of your tax return. Insufficient payment and/or underestimation of taxable income may lead to you being charged with penalties and interest on the submission of your return.