Provisional tax for individuals

Provisional tax is not a separate tax but rather pre-payments towards your income tax liability for a specific tax year and is filed bi-yearly (August and February).  The aim of provisional tax payments is for SARS to collect their taxes on an ongoing basis prior to assessment.  The payment of provisional tax also helps taxpayers to fulfil their tax liability by spreading the payments over a year as opposed to a lumpsum payment.  Once SARS have assessed a taxpayer, the provisional tax payments will be offset against the final liability thereby reducing the final payment.

Underpayment of provisional tax

Underpayment of provisional tax underestimation penalties will be imposed by SARS if the following criteria is not met:

• Actual taxable income > R1m on assessment and a provisional tax return in respect of the 2^nd period was filed declaring income which is < than 80% of actual income finally assessed; or

• Actual taxable income < R1m and taxable income estimated and declared on the 2^nd provisional tax return is < basic amount (last assessed taxable income) and not within 90% of actual income.

Overpayment of provisional tax

If provisional tax was overpaid, i.e. provisional tax payments were more than the assessed tax liability for a tax year, the excess amount will be refunded to the taxpayer with interest.

Two compulsory and one voluntary provisional tax returns per tax year

SARS deems you to be a provisional taxpayer based on the following:

1. You receive income other than remuneration e.g. interest income or rental income, which exceeds the annual tax thresholds (refer attached); or
2. You made a taxable capital gain on the sale of shares, property, etc; or
3. You received any other form of income which is not subject to monthly PAYE.

1^st provisional tax return due in August of each year; and

2^nd provisional tax return due in February of each year.

Should your ultimate tax liability in respect of a particular year exceed your tax paid by way of PAYE, 1^st provisional tax return and 2^nd provisional tax return, a top-up or voluntary 3^rd provisional tax payment may be made by the September following the February year-end.  The tax liability, if paid by September, will bear no interest.  Should this top-up payment be made from 1 October onwards following your year-end, the liability will attract interest but no penalty will be imposed, provided the 1^st and 2^nd provisional tax returns have been calculated correctly.

Please consult the attached table for an easy-to-understand guide.  Should you require professional assistance with the calculations, submissions or payment of any of your provisional tax returns, please do not hesitate to contact our office.  Our Tax Department staff would welcome the opportunity to assist you.

This article is a general information sheet and should not be used or relied on as 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 financial adviser for specific and detailed advice.