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Provisional Tax
Content of the session
Who are provisional taxpayers?
Administration
Calculation of provisional tax payments:
First
Second
Third
The impact of medical deductions for natural person taxpayers
Estimates
Penalties
Classification as Provisional Taxpayer
Who are provisional taxpayers?
Companies (paragraph 1)
ALL companies
Excluding
▪ Public Benefit Organisations (PBOs) approved by SARS
▪ Recreational clubs approved by SARS
▪ Body Corporates
▪ Share Block Companies
Who are provisional taxpayers?
Natural persons (paragraph 1)
Person who derives income, other than remuneration or an allowance or advance as
contemplated in section 8(1)
Person who is notified by the Commissioner that he/she is a provisional taxpayer
Excluding: A person exempt from provisional tax per paragraph 18
What about directors of private companies and members of CCs???
= employees
Therefore, not provisional taxpayers UNLESS they receive income that falls within the
scope of provisional tax income
Exclusions from the definition
Natural person who does not derive any income from the carrying on of any business AND
the taxable income of that person for the relevant year of assessment does not exceed
the tax threshold; OR
the taxable income of that person for the relevant year of assessment which is derived
from interest, dividends, foreign dividends and rental from the letting of fixed property
does not exceed R30 000
Tax thresholds
Taxpayer’s age 2016 year of assessment 2017 year of assessment
Taxpayer < 65 R73 650 R75 000
Taxpayer between 65 and 75 R114 800 R116 150
Taxpayer ≥ 75 R128 500 R129 850
Example
Taxpayer B is 68 years old. He earned a pension of R8 000 per month and localinterest income of R40 500 during the course of the 2017 year of assessment.
Pension (R8 000 x 12) R96 000Interest income R40 500Interest exemption (R34 500)Taxable income R102 000
Natural person who does not derive any income from the carrying on of anybusiness AND the taxable income (R102 000) does not exceed the tax threshold (R116 150); OR
the taxable income of that person for the relevant year of assessment which is derived frominterest, dividends, foreign dividends and rental from the letting of fixed property does notexceed R30 000 (R40 500 – R34 500 = R6 000)
Therefore, NOT provisional taxpayer
Administration
When to submit returns – Natural
persons
28 February 2017 year-end
First payment 31 August 2016
Second payment 28 February 2017
Third payment 30 September 2017
When to submit returns -
Companies
First payment 6 months after the start of the year of assessment
Second payment At the end of the year of assessment
Third payment For 28/29 February year-ends
▪ 30 September
For all other year of assessments▪ Six months after the end of the year-end
28 February 2017 year-end 31 May 2017 year-end
First payment 31 August 2016 30 November 2016
Second payment 28 February 2017 31 May 2017
Third payment 30 September 2017 30 November 2017
How to submit a return
IRP6 return must be completed for provisional taxpayers
What if the total amount of tax due is R0?
IRP6 return IS required
What if the taxable income is R0?
IRP6 return IS NOT required
What happens if a taxpayer fails to submit an IRP6 return?
The Commissioner may estimate the taxable income and determine the tax
payable (paragraph 19(2)
Payments
Bank payments – 19-digit payment reference number and beneficiary ID/account number
If last day of payment falls on a Saturday, Sunday or public holiday
Payment must be made on the last working day prior to weekend or public holiday
Deferral arrangements
Negotiated with senior SARS official
Termination / modification if:
▪ Collection of tax is in jeopardy OR
▪ Taxpayer has supplied materially incorrect information in applying for a deferral OR
▪ Financial condition of the taxpayer has changed materially
Qualifying for a deferral arrangement:
▪ Taxpayer suffers from deficiency of assets or liquidity which is reasonably certain to be remedied in the future
OR
▪ Taxpayer anticipates income or other receipts which can be used to satisfy the tax debt OR
▪ Prospects of immediate collection activity are poor or uneconomical but are likely to improve in the future OR
▪ Collection activity would be harsh OR
▪ The taxpayer provides security
What to do if a penalty is levied?
Format of calculations: Non-natural persons
First provisional tax payment
Estimated taxable income for the year of assessment
Normal tax on estimated taxable income
½ of total tax payable
FIRST PROVISIONAL TAX PAYMENT
Second provisional tax payment
Estimated taxable income for the year of assessment
Normal tax on estimated taxable income
Less: First provisional tax payment (only if actually paid)
SECOND PROVISIONAL TAX PAYMENT
Third provisional tax payment
Estimated / Actual taxable income for the year of assessment
Normal tax on estimated taxable income
Less: First provisional tax payment (only if actually paid)
Less: Second provisional tax payment (only if actually paid)
THIRD TOP-UP PAYMENT
Calculation for companies vs.
Calculations for individuals
Estimated / Actual taxable income for the year of assessment
Normal tax on estimated taxable income
Less: Primary, secondary and tertiary rebates
Less: Tax credit for medical scheme fees (section 6A)
Less: Additional medical expenses tax credit (section 6B)
Total Tax Payable
Less: Employees’ tax deducted during the first and second period
Less: First provisional tax payment (only if actually paid)
Less: Second provisional tax payment (only if actually paid)
THIRD TOP-UP PAYMENT
Format of calculations: Natural persons
First provisional tax payment
31 August
Estimated taxable income for the year of assessment
Normal tax on estimated taxable income
Less: Primary, secondary and tertiary rebates
Less: Tax credit for medical scheme fees (section 6A)
Less: Additional medical expenses tax credit (section 6B)
Total Tax Payable
½ of total tax payable
Less: Employees’ tax deducted during the first period
FIRST PROVISIONAL TAX PAYMENT
Second provisional tax payment
28/29 February
Estimated taxable income for the year of assessment
Normal tax on estimated taxable income
Less: Primary, secondary and tertiary rebates
Less: Tax credit for medical scheme fees (section 6A)
Less: Additional medical expenses tax credit (section 6B)
Total Tax Payable
Less: Employees’ tax deducted during the first and second period
Less: First provisional tax payment (only if actually paid)
SECOND PROVISIONAL TAX PAYMENT
Third provisional tax payment
30 September
Estimated / Actual taxable income for the year of assessment
Normal tax on estimated taxable income
Less: Primary, secondary and tertiary rebates
Less: Tax credit for medical scheme fees (section 6A)
Less: Additional medical expenses tax credit (section 6B)
Total Tax Payable
Less: Employees’ tax deducted during the first and second period
Less: First provisional tax payment (only if actually paid)
Less: Second provisional tax payment (only if actually paid)
THIRD TOP-UP PAYMENT
Medical scheme tax credit
(section 6A)
Only if member of registered medical scheme
Reduces tax liability to Rnil, but cannot be carried forward
Tax credit:
R286 per month for main member
R286 per month for the first dependant
R192 per month for each additional dependant
Additional medical expenses tax
credit (section 6B)
< 65 years ≥ 65 years
Total medical scheme contributions Total medical scheme contributions
Less: 4 x total Section 6A medical credit Less: 3 x total Section 6A medical credit
Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions)
Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions)
Less: 7.5% of taxable income (excluding retirement fund lump sums and severance benefits)
Subtotal
Subtotal Additional medical expenses tax credit = Subtotal x 33 1/3 %
Additional medical expenses tax credit = Subtotal x 25%
Example: < 65
Taxpayer C is 25 years old and married. He is the main member of a registered medical aid
with his wife as his dependant and pays R1 500 total monthly contribution. During the 2017
year of assessment, he also paid R25 000 medical expenses himself which were not
covered by the medical aid. His taxable income for the 2017 year of assessment amounts
to R350 000.
Total medical scheme contributions R1 500 x 12 = R18 000
Less: 4 x total Section 6A medical credit (R286 + R286) x 12 x 4 = R27 456
Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions)
R25 000
Less: 7.5% of taxable income (excluding retirement fund lump sums and severance benefits)
R350 000 x 7.5% = R26 250
Subtotal R0
Additional medical expenses tax credit = Subtotal x 25%
R0
Rnil
Integrated calculation example
Taxpayer K is a 30 year old man living in Johannesburg. He is married to Sarah and
has two children. He has also incurred R35 000 qualifying medical expenses during
the first six months of the 2017 year of assessment and R25 000 during the second
six months. He has also contributed R2 500 per month towards a qualifying medical
aid. He estimates his taxable income to amount to amount to R400 000 for the 2017
year of assessment. R5 000 employees’ tax is deducted from his salary each month.Total medical scheme contributions R2 500 x 12 = R30 000
Less: 4 x total Section 6A medical credit (R286 + R286 + R192 + R192) x 12 x 4 = R45 888
Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions)
R35 000
Less: 7.5% of taxable income (excluding retirement fund lump sums and severance benefits)
R400 000 x 7.5% = R30 000
Subtotal R5 000
Additional medical expenses tax credit R1 250
First provisional tax payment
Estimated taxable income for the year of assessment R400 000
Normal tax on estimated taxable income R94 280
Less: Primary, secondary and tertiary rebates (R13 500)
Less: Tax credit for medical scheme fees (section 6A) (R11 472)
Less: Additional medical expenses tax credit (section 6B) (R1 250)
Total Tax Payable R68 058
½ of total tax payable R34 029
Less: Employees’ tax deducted during the first period (R30 000)
FIRST PROVISIONAL TAX PAYMENT R4 029
Additional medical expenses tax credit
for the 2nd provisional tax payment
Total medical scheme contributions R2 500 x 12 = R30 000
Less: 4 x total Section 6A medical credit (R286 + R286 + R192 + R192) x 12 x 4 = R45 888
Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions)
R35 000 + R25 000 = R60 000
Less: 7.5% of taxable income (excluding retirement fund lump sums and severance benefits)
R400 000 x 7.5% = R30 000
Subtotal R30 000
Additional medical expenses tax credit R7 500
Second provisional tax payment
Estimated taxable income for the year of assessment R400 000
Normal tax on estimated taxable income R94 280
Less: Primary, secondary and tertiary rebates (R13 500)
Less: Tax credit for medical scheme fees (section 6A) (R11 472)
Less: Additional medical expenses tax credit (section 6B) (R7 500)
Total Tax Payable R61 808
Less: Employees’ tax deducted during the first and second period (R60 000)
Less: First provisional tax payment (only if actually paid) (R4 029)
SECOND PROVISIONAL TAX PAYMENT Rnil
Estimates
How should an estimate be made?
Total expected taxable income, excluding:
Retirement fund lump sum benefits
Retirement fund lump sum withdrawal benefits
Severance benefits
Estimate cannot be less than basic amount UNLESS the Commissioner agrees
Onus is on taxpayer
Taxpayer may be asked to justify any estimate made by him/her or to furnish full
particulars of income
If taxpayer does not respond or response is not satisfactory, the estimate may be
increased to an amount which is considered reasonable (paragraph 19(3))
SARS will notify the taxpayer and issue a revised estimate
Basic amount
Taxpayer’s taxable income assessed for the latest preceding year of assessment ,
excluding
Taxable capital gain
Amounts per paragraph (d) of the “gross income” definition
Taxable portion of a retirement fund lump sum benefit or retirement fund lump
sum withdrawal benefit or severance benefit other than those included under
paragraph (eA) of the “gross income” definition
Taxable income of the latest
preceding year of assessment
What does this mean?
Assessment preceding the year of assessment in respect of which the estimate is made
Notice of assessment has been issued by SARS > 14 days prior to the due date of the
estimate
What if not available?
Increase of 8% per year IF
▪ An estimate is made for a period that ends > 1 year after the end of the latest
preceding year of assessment; AND
▪ The estimate is made > 18 months after the end of the latest preceding year of
assessment
Example
Taxpayer C needs to submit is 1st provisional tax return on 31 August 2015. Hisnotice of assessment for the 2015 year of assessment was issued on30 August 2015. His notice of assessment for the 2014 year of assessment wasissued on 5 December 2014.
The notice of assessment for the 2015 year of assessment (30 August 2015) wasNOT issued 15 days prior to the submission of the provisional tax estimate(31 August 2015).
Therefore, the14 day criteria has NOT been met Therefore, the latest preceding year is the 2014 tax year
An estimate is made for a period that ends 31 August 2015 which is > 1 year afterthe end of the latest preceding year of assessment (namely 28 February 2014);AND
The estimate is made on 31 August 2015 which is NOT > 18 months after the end ofthe latest preceding year of assessment
Therefore, the basic amount (2014) will not be increased by 8% per year
Example
Company B neglected to submit tax returns for 2013, 2014 and 2015. The taxable income for the30 June 2012 year of assessment (as assessed, for which a notice of assessment was issued on3 July 2012) amounted to R220 000, which included a taxable capital gain of R20 000.
Company B is busy preparing the 1st provisional tax return for the 2016 year of assessment.
2012 assessment was issued on 3 July 2012 which is > 14 days than the due date of the 1st
provisional tax return Therefore, the 2012 year of assessment forms the basic amount
The 1st provisional tax return for the 2016 year of assessment (31 December 2015) ends morethan 1 year after the end of the latest preceding year of assessment (which ended 30 June2012); AND
The estimate is more than 18 months after the end of the last preceding year (2012) Therefore, the basic amounts needs to be increased by 8% for each year
2012, 2013, 2014 and 2015
Therefore, (R220 000 – R20 000) + ((R220 000 – R20 000) x 8% x 4)
= R264 000
Penalties
Understatement of taxable income
(paragraph 20)
Second provisional tax payment
If actual taxable income > Estimated taxable income
Understatement penalty (paragraph 20) is reduced by penalty imposed for late
payment (paragraph 27)
Non-submission of the estimate on taxable income
Deemed to be a Rnil submission
Penalty amount depends on taxable income
Paragraph 20 penalty – Taxable
income < R1 million
Second period estimate must be equal to the lesser of:
Basic amount; or
90% of actual taxable income for the year of assessment
If estimate < 90% of actual taxable income and estimate < basic amount
Penalty = 20% of the lower of
▪ Normal tax on 90% of the actual taxable income; or
▪ Normal tax on basic amount
Less provisional tax and employees’ tax for the period
Example
Company X is a provisional taxpayer. The applicable basic amount is R500 000. Anestimate of R300 000 has been used for the 2017 year of assessment, since lowertrading revenue was expected due to the current economic climate. The final actualtaxable income amounted to R400 000. An amount of R25 000 provisional tax waspaid during the period.
Estimate (R300 000) < 90% of actual taxable income (R400 000 x 90% =R360 000); and
Normal tax on 90% of actual taxable income (R360 000)▪ R360 000 x 28% = R100 800
Normal tax on basic amount (R500 000)▪ R500 000 x 28% = R140 000
Therefore, R100 800
Less: Provisional tax paid during the period of R25 000
= R75 800 x 20% = R15 160
Paragraph 20 penalty – Taxable
income ≥ R1 million
Second estimate must be = 80% of actual taxable income
20% x normal tax on 80% of the actual taxable income
Less: Provisional tax payments paid during the year of assessment
Less: Employees’ tax deducted during the year of assessment
Example
Company Y is a provisional taxpayer. The applicable basic amount isR1 200 000. An estimate of R1 100 000 for the 2017 year of assessment,since lower trading revenue was expected due to the current economicclimate. The final actual taxable income amounted to R1 400 000. R100 000provisional tax was paid during the period.
Second estimate (R1 100 000) must be = 80% of actual taxable income(R1 400 000 x 80% = R1 120 000)
Therefore, √ penalty 20% x normal tax on 80% of actual taxable income
20% x (R1 120 000 x 28%) = R313 600Less: Provisional tax payments paid during the year of assessment(R100 000)
= 20% x R213 600= R42 720
Other penalties
Failure to submit an estimate timeously (paragraph 20A)
Deleted
Late payment
10% on late payment of 1st and 2nd payments
Interaction between penalties
example
ABC (Pty) Ltd is a provisional taxpayer. The applicable basic amount is R500 000.
An estimate of R300 000 was used for the 2016 year of assessment, since lower
trading revenue was expected due to the current economic climate. The final actual
taxable income amounted to R400 000. An amount of R25 000 was paid as a 1st
provisional tax payment The 2nd provisional tax payment of R30 000 was due on
31 March 2016 but is only paid on 1 December 2016.
SolutionUnderestimation penalty (paragraph 20) Estimate (R300 000) < 90% of actual taxable income (R400 000 x 90% = R360 000); and Estimate (R300 000) < basic amount (R500 000) Therefore, paragraph 20 penalty = 20% lower of:
Normal tax on 90% of actual taxable income (R360 000)▪ R360 000 x 28% = R100 800
Normal tax on basic amount (R500 000)▪ R500 000 x 28% = R140 000
Therefore, R100 800
Less: Provisional tax paid during the period of R25 000
= R75 800 x 20% = R15 160
Late payment penalty 10% x R30 000 = R3 000
Therefore, the penalty on underestimation (paragraph 20) of R15 160 is REDUCED by the latepayment penalty (paragraph 27) of R3 000
Therefore, the penalty on underestimation is R15 160 – R3 000= R12 160