Since the provisional tax season has arrived, it is important to remember the rules regarding your estimates. The provisional tax payment must be received by SARS on or before the due date, 28 February 2017. Failure to do so could result in penalties and interest imposed by SARS.
Important rules regarding provisional tax
Provisional tax is a method of paying tax due, to ensure the taxpayer does not pay large amounts on assessment, as the tax liability is spread over the relevant year of assessment. It requires the taxpayers to pay at least two amounts in advance, during the year of assessment, which are based on estimated taxable income. A third payment is optional after the end of the tax year, but before the issuing of the assessment final liability is worked out upon assessment and the payments will be off-set against the liability for normal tax for the applicable year of assessment.
- Provisional tax payments are calculated on estimated taxable income, which includes taxable capital gains for the particular year of assessment.
- It is imperative that if you have earned a capital gain during the current year that you declare it for provisional tax purposes.
- In the event that you do not advise us of a capital gain that should be included in provisional tax, an understatement penalty may very well be levied by SARS.
There are certain penalties for underpayment of provisional tax, which will be levied by SARS.
- If your actual taxable income is more than R1 million a penalty will be levied if the second period estimate is less than 80% of actual taxable income.
- If your actual taxable income is equal or less than R1 million a penalty will be levied should the second period estimate of taxable income for the year of assessment deviate from the basic amount applicable to that period.
- A penalty of up to 20% of the underpayment may be charged by SARS.
- Interest will be charged on all late payments.
Should your payment not reach the South African Revenue Service on or before the due date, a penalty of 10% will be levied on outstanding amounts and/or SARS will consider your estimated income for the 2nd provisional tax payment to be zero and will apply the relevant penalties.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)