Everything you need to know about provisional tax
Personal tax return season will come to an end in a couple of weeks and provisional tax season is upon us. For many, provisional tax remains a mystery a lot of South Africans aren’t sure what it is and if they should be paying it. Fortunately, Cornerstone Tax and Accounting has your back, and with the help of SARS we have put together a comprehensive, yet concise guide to provisional tax.
What is provisional tax?
Firstly, it’s important to note that provisional tax is not a separate tax from income tax. It is a method of paying the income tax liability in advance, to ensure that you aren’t left with a large tax debt on assessment.
Provisional tax allows your tax liability to be spread over the relevant year of assessment and requires taxpayers to pay at least two amounts in advance, during the year of assessment, which are based on estimated taxable income. On assessment the provisional payments will be off set against the liability for normal tax for the applicable year of assessment.
Who must pay provisional tax?
Any person who receives income (or to whom income accrues) other than a salary, is a provisional taxpayer. Most salary earners are therefore non-provisional taxpayers, if they have no other sources of income. It is important to note that receiving exempt income, as follows, does not make you a provisional taxpayer:
- If you receive interest of less than R23 800 if you are under 65; or
- If you receive interest of less than R34 500 if you are 65 and older or;
- You have income in a tax-free savings account.
A provisional taxpayer is defined in paragraph 1 of the Fourth Schedule of the Income Tax Act, No.58 of 1962, as any:
- Natural person who derives income, other than remuneration or an allowance or advance as mentioned in section 8(1) or who derives remuneration from an employer who is not registered for employees’ tax (for example, an embassy is not obligated to register as an employer for employees’ tax purposes)
- company; or
- person who is told by the Commissioner that he or she is a provisional taxpayer.
Excluded from being a provisional taxpayer as defined are any:
- approved public benefit organisations or recreational clubs that have been approved by the Commissioner in terms of s30 or s30A;
- body corporates, share block companies or certain associations of persons;
- Non-resident owners or charterers 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 2020 tax year: for taxpayers below age of 65 – R79 000; age 65 to below 75 – R122 300 and age 75 and over – R136 750); or the taxable income of that person (earned from interest, foreign dividends, rental from letting of fixed property and remuneration from unregistered employer) will not be more than R30 000;
- A small business funding entity; and
- a deceased estate.
How should it be paid?
You can pay provisional tax via eFiling on the SARS website before 31 January 2020 or by visiting your nearest SARS branch before 31 October 2019. Understanding provisional tax can be difficult to understand at times – to avoid any mistakes and unnecessary fines, make sure you appoint a qualified and experienced tax practitioner. If you require any assistance with provisional, company or personal tax, contact Cornerstone tax and Accounting Services today to learn more about our bespoke and specialised services.
This article was adapted from Provisional Tax published by SARS on 9 July 2019. For the original article, please click here https://bit.ly/2lW9lxq