The deadline for provisional tax is looming again. And even though the provisional tax legislation is largely unchanged, Deborah Tickle, a tax partner at KPMG, says there is something in a SARS notice you should be aware of.
It's coming up to that time of the year again when you have to start thinking about paying your provisional tax. If you are a provisional taxpayer, your first payment is due on Saturday, August 31.
It used to be a simple exercise to calculate what you had to pay for both your first and second payments. You took the figure that the South African Revenue Service (SARS) had recorded on the provisional tax form (commonly known as the IRP6), and applied the current tax tables to that figure to calculate the annual amount payable.
Then you would deduct the tax you had already paid as employee's tax. In August, you would pay half of the figure you had calculated. In February, you would pay the remainder. Only in the following September did you have to make sure that any balance of tax, based on your actual taxable income for the year, was paid.
The figure SARS recorded on your IRP6 was the amount of taxable income reflected on your last tax assessment (SARS calls this the "basic amount"), and unless your circumstances had changed and your taxable income was likely to be reduced in the current year, you knew SARS would accept this figure for your first two tax payments. If you had never paid tax in South Africa before, it was generally accepted that you could use "nil" as your basic amount.
It seems that SARS has created some confusion about the payment of provisional taxes, because it issued an "interpretation note" at the end of November 2001 that set out what is expected insofar as provisional tax is concerned. The note provided some clarity to taxpayers, following upon a "circular minute" that was issued to SARS officials in 1998, explaining to them what they were expected to do with provisional taxes.
SARS only recently introduced the practice of issuing "interpretation notes". The first one issued, in fact, concerned provisional taxes, but was followed by a number of others. It seems something of a pity that our tax authorities believe that the legislation they draft is so difficult to follow that they have to issue interpretation notes, especially when these notes are to interpret legislation that has been in place, and that we have all been working with, for many years - seemingly incorrectly. Life as a tax consultant will always be interesting.
Where does this leave you, the unsuspecting taxpayer? The interpretation note basically says that if SARS is not satisfied with the estimate of taxable income for the year that you record on your provisional tax form, even if you have used the basic amount (which used to automatically satisfy the Receiver), SARS can, and in certain circumstances will, ask you to justify the estimate, and increase it where necessary to reflect your true taxable income for the year.
The note says that the circumstances under which this is likely to happen are, for an individual:
- If you are trading and financial results support an increase in taxable income (how SARS will know this will be interesting to see);
- Where your last assessment is more than two years old; or
- Where it is your first year registered as a taxpayer (this will largely affect people newly joining the workforce, or immigrants). In this situation, SARS says that a nil estimate is not acceptable.
What do you do?
The answer is straightforward. You should prepare and pay your provisional tax in the same way that you always have - that is, based on the basic amount or last assessed taxable income. As a new taxpayer, use nil. If SARS does not feel comfortable with this figure, it may ask for a revised estimate, and thereafter you have 14 days to pay any additional tax without penalties or interest.
So, make sure you have the necessary funds readily available if SARS does come back and ask for more.
You need to register as a provisional taxpayer if:
- You earn more than R10 000 in income from a source other than remuneration (a salary). For example, if you earn more than R10 000 in taxable income from an investment, or as business, farming or rental income; or
- You are a director of private company or a member of a close corporation; or
- SARS notifies you that you are a provisional taxpayer.