Provisional taxpayers have just under two weeks left to submit Income Tax Returns.
In a SARS webinar from August last year, it was explained that provisional tax isn’t a separate tax; instead, it’s a way to spread out the payment of income tax throughout the year. This helps taxpayers avoid a large lump sum payment during the assessment period.
Here’s how it works:
- Two advance payments: taxpayers need to make at least two advance payments during the year, based on their estimated taxable income.
- First payment: The first payment is due within six months from the start of the assessment year. For example, if the assessment year ends on February 28/29, the first provisional tax payment is due on or before August 31.
- Second payment: The second payment must be made by the last working day of the assessment year, which is the last business day of February.
- Voluntary third payment: There’s also an option for a third payment, which is voluntary. Companies with a year-end of February and any individual (other than a company) have until the last business day of September to make this payment. For others, it should be made within six months of the end of the assessment year.
According to Sars, this system ensures a smoother and more manageable way for taxpayers to fulfill their tax obligations throughout the year.
Who is a ‘provisional taxpayer’?
Your provisional taxpayer status changes as your income changes. For example, you may have a tenant renting a property from you and receive rental income, and the next year you may not. Check each tax year to see whether your income and income sources qualify you as a provisional taxpayer.
A provisional taxpayer is:
- Any person, (other than a company) who earns income that is not remuneration, an allowance or advance as contemplated in section 8(1) or who earns remuneration from an employer (for example, an embassy is not obligated to register as an employer, and many nonresident employers who employ staff in South Africa do not register) that is not registered for employees’ tax;
- any company (other than those specifically excluded); and
- any person notified by the Commissioner of Sars.
They need to declare their total estimated taxable income on their provisional tax returns (IRP6) and pay the applicable tax.
Provisional taxpayers must, submit an estimated taxable income which will be calculated by the taxpayer in respect of the year of assessment for which the provisional tax is payable. This estimate must not include any retirement fund lump sum benefits, retirement fund lump sum withdrawal benefit or any severance benefit received by or accrued to the taxpayer during the relevant year of assessment.
The return must be submitted even if the provisional tax calculation results in a nil payment.
Entities not considered a provisional taxpayer include:
- Approved public benefit organisations or recreational clubs that have been approved by the Commissioner in terms of s30 or s30A;
- bodies Corporate, share block companies or certain associations of persons; non-resident owners or charterers of ships or aircraft; and
- small business funding entity or deceased estate.
An individual (natural person) is not required to submit and pay provisional tax (IRP6) if he or she does not carry on any business, and the individual’s taxable income:
- Will not exceed the tax threshold for the tax year; or
- from interest, dividends, foreign dividends, rental from the letting of fixed property; and the remuneration from an unregistered employer will be R30 000 or less for the tax year.
The tax thresholds for the 2024 tax year are:
- R 95 750 if you are under 65; or
- R 148 217 if you are older than 65 and younger than 75; or
- R 165 689 if you 75 and older.
Local dividends earned on investments from South African financial institutions are considered exempt. As is investment interest earned up to R23 800 for those under 65 and interest earned up to R34 500 for those over 65.
Penalties for under-estimation and late payment
A penalty for under-estimation is levied when the actual taxable income is more than the taxable income estimated on the second provisional tax return.
The penalty you might face depends on whether your taxable income is more or less than R1 million.
More than R1 million:
- If your taxable income is less than 80% of the actual taxable income declared in your annual tax return, a penalty of 20% will be applied. This penalty is calculated on the difference between the tax payable on 80% of your actual taxable income (considering rebates) and the total normal tax, employees’ tax, and provisional tax paid.
R1 million or less:
- If your taxable income is less than 90% of the finally determined actual taxable income and the basic amount applicable to the second period, you will incur a penalty. The penalty amount is 20% of the difference between the normal tax payable for the year on 90% of your finally determined actual taxable income, and the normal tax payable for the year on the basic amount applicable to the second period.
If you’re late with your payments, watch out for a 10% penalty.
If you underestimated your actual taxable income in the second period, the penalty for that is a bit kinder – it gets reduced by the penalty slapped on for paying late on provisional tax.
But here’s a bit of hope: if the Commissioner believes you didn’t submit your estimate on time without intending to dodge or delay payment, they might just let you off the hook. They have the power to remit the whole or part of the penalty.
The deadline for provisional taxpayers to submit Income Tax Returns is Wednesday 24 January.
Click here to see the full Sars webinar on provisional tax.
