PROVISIONAL TAX IN A NUTSHELL.

First Year of Assessment

Where a taxpayer has not been assessed previously, a reasonable estimate of the taxable income, and not merely a default of nil, must be made.

First Payment

The estimate of taxable income may not be less than the basic amount, unless circumstances justify a lower estimate.

Second Payment

A two-tier system applies depending on the taxpayer’s taxable income:

• Actual taxable income of R1 million or less

To avoid any penalty the basic amount must be used. If a lower estimate is used, this must be within 90% of the taxable income finally assessed.

• Actual taxable income exceeds R1 million

To avoid any penalty the estimate must be within 80% of the taxable income, excluding retirement fund lump sums, finally assessed.

If the above requirements are not met, a penalty of 20% is levied on the difference between the estimated tax and 90% of the actual tax (if the taxable income is R1 million or less), or 80% of the actual tax (if the taxable income exceeds R1 million), less PAYE and provisional tax paid in the year of assessment. The penalty may be waived or reduced if the taxpayer can prove that due care has been taken in seriously calculating the estimate.

• Non-submission of a return

Where the return is not submitted within four months of the due date, the estimate of taxable income is deemed to be nil.

Third Payment

Third provisional payments are only applicable to individuals and trusts with taxable income in excess of R50 000 and companies and close corporations with taxable income in excess of R20 000.

Year of Death

As from 15 January 2020, no estimate is required for the period from the last provisional return up to date of death.

Basic Amount

As from 1 March 2015, the basic amount is the taxable income of the latest preceding tax year, provided the assessment is issued at least 14 days prior to the submission of the provisional tax return. If that assessment is for a tax year older than 18 months, the basic amount is increased by 8% per year.
Permissible Reductions in the Basic Amount
Capital gains, retirement fund lump sums and certain severance benefits reduce the basic amount.

Estimates

Where an estimate lower than the basic amount is used, capital gains must be included in that estimate and the taxpayer’s circumstances must justify a lower estimate. Capital gains must be included in the second estimate if the final taxable income is expected to exceed R1 million. SARS has the right to increase any estimate, to an amount considered reasonable.

Exemptions

Natural persons, excluding sole proprietors, are exempt from provisional tax if either:
• the taxable income does not exceed the tax threshold; or
• the taxable income from dividends (e.g. REIT distributions), interest, foreign dividends, rental from letting immovable property and remuneration from an employer not registered for PAYE, does not exceed R30 000.

Body corporates, deceased estates, PBO’s, recreational clubs, shareblocks and small business funding entities are exempt from provisional tax.