Provisional Tax

WHAT IS PROVISIONAL TAX?

Where an individual earns taxable income that is not subject to SITE or PAYE deductions such as interest rental or business income he/she must pay provisional tax on this income on a six-monthly basis. Provisional tax is intended to assist taxpayers to meet their tax liabilities on an on- going basis as opposed to paying a large amount once a year on assessment. The provisional tax paid will be offset against the final income tax that the individual has to pay for the year of assessment concerned.

Note The onus is on the taxpayer to apply at their local SARS branch for registration as a provisional taxpayer within 30 days after the date on which he/she qualifies as a provisional taxpayer.

WHO IS A PROVISIONAL TAXPAYER?
Any individual who earns business income or farming income.
Any director of a private company if that director is a resident.
Any member of a close corporation if that member is a resident.
Any company.
Any person who is notified by the Commissioner that he/she is a provisional taxpayer.
Any individual who derives taxable interest dividends and rental income in excess of a specified total which is R10000 in respect of the 2006 tax year. An individual who is 65 years and older will be exempt from paying provisional tax if his/ her taxable income does not exceed a specified total of R80 000 for the 2006 year of assessment and which is only derived from employment such as salaries and wages interest dividends or rental of fixed property. The taxable amount of interest and dividends is determined by deducting a specified exempt amount from the total amounts derived. The specified exemption for the sum of interest and taxable dividends for the 2006 year of assessment is R15 000 where the individual is under 65 years and R22 000 where the individual is 65 years and older. Foreign interest and dividends will only be exempt up to R2 000 out of the total exemption. This means that an individual under 65 years who only receives a salary and interest from a South African bank will only qualify as a provisional taxpayer for the 2006 year of assessment if the total interest received exceeds R25 000 (R15 000 R10 000) for the year of assessment.
WHEN IS PROVISIONAL TAX DUE?
First payment – 6 months after the commencement of the year of assessment that is on 31 August 2005
Second payment – not later than the last day of the year of assessment that is on 28 February 2006.
A voluntary third or top up payment – 7 months after the end of the year of assessment that is on 30 September 2006. This will only become necessary where the taxable income is in excess of R50 000 for individuals. This payment can be made to avoid the liability for interest that will arise due to the final income tax not being settled within seven months of the end of the tax year.

HOW MUCH PROVISIONAL TAX MUST BE PAID?
A provisional tax return must be completed by estimating the total taxable income of the individual for the year of assessment and determining the tax payable on the estimate. The estimate may not be lower than the assessed taxable income of the individual for the previous year of assessment which is referred to as the basic amount unless the taxpayer can substantiate the lower estimate. Where an individual has no assessed taxable income in respect of a previous year of assessment the individual must estimate his/her taxable income for the current year of assessment as accurately as possible. SARS may request the individual to justify any estimate submitted and may increase the amount of the estimate if the individual is unable to justify the estimate. The tax that is payable on the estimated taxable income for the year of assessment must be determined by applying the rate of normal tax applicable to that amount of taxable income. Employees tax SITE and PAYE any foreign taxes paid or proved to be payable by the provisional taxpayer to the government of another country and any provisional tax already paid for that year of assessment can be deducted from the estimated provisional tax that is payable for the relevant provisional tax period.