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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


Companies (paragraph 1)

ALL companies

Excluding

▪ Public Benefit Organisations (PBOs) approved by SARS

▪ Recreational clubs approved by SARS

▪ Body Corporates

▪ Share Block Companies


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



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



Less: Second provisional tax payment (only if actually paid)

THIRD TOP-UP PAYMENT

Calculation for companies vs.

Calculations for individuals



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




Format of calculations: Natural persons


31 August






Total Tax Payable

½ of total tax payable

Less: Employees’ tax deducted during the first period

FIRST PROVISIONAL TAX PAYMENT


28/29 February






Total Tax Payable



SECOND PROVISIONAL TAX PAYMENT

Third provisional tax payment

30 September






Total Tax Payable





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)


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


R25 000


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


R35 000


R400 000 x 7.5% = R30 000

Subtotal R5 000

Additional medical expenses tax credit R1 250


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


R35 000 + R25 000 = R60 000


R400 000 x 7.5% = R30 000

Subtotal R30 000

Additional medical expenses tax credit R7 500


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)


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

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

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

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