Provisional Tax ( 5 Things you need to know)

The upcoming provisional tax payments is at the end of February

Many companies and individuals are not sure that they need to submit provisional returns and payments.

So, what is this provisional tax thing we are talking about?

1. Understanding Provisional Tax and Who Qualifies as a Provisional Taxpayer

If you’re unsure whether you’re considered a provisional taxpayer, let’s simplify things for you.

Being a provisional taxpayer usually comes into play when you receive income beyond your regular salary. This encompasses various income types, but it’s important to remember that not all exempt income makes you a provisional taxpayer. Here’s a breakdown:

If you’re under 65 and earn interest under R23,800, or if you’re 65 and older and earn interest under R34,500, provisional status might not apply.
Exempt amounts from a tax-free savings account don’t trigger provisional taxpayer status.

So, who exactly falls under the provisional taxpayer category according to the Income Tax Act? It includes:

Individuals earning income other than standard pay, allowances, or certain advances mentioned in section 8(1), and those getting remuneration from unregistered employers (like embassies).
Companies.
Individuals designated as provisional taxpayers by the Commissioner.

Exceptions to this definition include:

Approved public benefit organizations and recreational clubs.
Specific tax-exempt entities like body corporates, share block companies, and certain associations.
Non-resident owners or charterers of ships or aircraft.
Individuals with no business income whose total taxable income stays under a certain threshold (for instance, for the 2023 tax year: under 65 – R91,250; 65 to under 75 – R141,250; 75 and over – R157,900), or whose income from sources like interest, foreign dividends, property rentals, and unregistered employers doesn’t exceed R30,000.
Small business funding entities.
Deceased estates.
Associations approved by the Commissioner under section 30B(2).

It’s crucial to understand that companies automatically fall under the provisional tax system; no separate registration or deregistration is required. You decide if provisional tax applies and then submit an IRP6 return through eFiling.

2. Provisional Tax Explained

Provisional tax serves as a prepayment of income tax, a strategy that helps taxpayers avoid hefty tax debts during assessment. Rather than a standalone tax, it involves paying a portion of projected income tax liability in advance. This empowers taxpayers to handle tax responsibilities better, avoiding substantial debts during assessment.

This method distributes tax liability across the assessment year. Taxpayers make at least two advance payments based on estimated taxable income within the assessment year.

A third payment, if desired, can be made after the tax year ends but before SARS issues an assessment. Upon assessment, provisional payments offset the normal tax liability for that assessment year.

Remember, understanding your provisional tax status is key, and companies are automatically part of the system, without a separate process. You decide if provisional tax applies and then submit an IRP6 return via eFiling.

3. How should Provisional tax it be paid?

The current process includes:

Register for SARS eFiling.
The eFiling facility allows you to request for an IRP6 return and make your submission and payments online. You can register once for all different tax types using the client information system.
If you are already an eFiler, simply add provisional tax to your profile so that you can access and file your IRP6 return online.

4. When should Provisional Tax be paid?

The first provisional tax payment must be made within six months of the start of the year of assessment. For years of assessment starting March, this will be 31 August, if it is a business day, or the last business day before that date if it falls on a Saturday, Sunday or public holiday.
The second payment must be made no later than the last working day of the year of assessment. This will be last business day of February.
The third payment is voluntary and may be made:
- for companies with a year end of the last day of February, and any other person (other than a company), the last business day of September;
- in any other case, within six months of the end of the year of assessment.

4. When should Provisional Tax be paid?

The first provisional tax payment must be made within six months of the start of the year of assessment. For years of assessment starting March, this will be 31 August, if it is a business day, or the last business day before that date if it falls on a Saturday, Sunday or public holiday.
The second payment must be made no later than the last working day of the year of assessment. This will be last business day of February.
The third payment is voluntary and may be made:
- for companies with a year end of the last day of February, and any other person (other than a company), the last business day of September;
- in any other case, within six months of the end of the year of assessment.

5. General Provisional Tax points:

If the provisional taxpayer does not submit the final provisional tax return within four months after the last day of the year of assessment, then the provisional taxpayer is deemed to have submitted an estimate of an amount of nil taxable income.
If the Commissioner is not satisfied with the estimate of taxable income made by the taxpayer, the Commissioner can increase the taxpayer’s estimate.
If the taxpayer does not make any estimate (fails to submit the IRP6s), the Commissioner can estimate the taxable income.

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