“Death, taxes, and childbirth! There’s never any convenient time for any of them.” (Margaret Mitchell)

What is provisional tax?

Provisional tax allows corporate and individual provisional taxpayers to pay their annual income tax in advance by making two or three payments during a tax year.

The aim is to prevent taxpayers from facing large income tax liabilities that are only revealed at the end of the year of assessment, when the annual personal income tax (PIT) return ITR12 or the annual corporate income tax (CIT) return ITR14 is filed in January.

While provisional tax payments can assist taxpayers by spreading their income tax liability over the tax year, they also create additional administrative obligations such as completing and submitting a provisional tax return (IRP 6) on time, twice or thrice a year. What’s more, they increase the risk of penalties, most notably under-estimation penalties.

Luckily you have us in your corner.

Are you a provisional taxpayer?

Companies are automatically provisional taxpayers. Individuals who receive income other than a salary may also be provisional taxpayers, depending on various criteria. Because SARS places the onus on you to determine if you are liable for provisional tax, it’s best to check your provisional tax status with us.

The 3 provisional tax payments

The first compulsory provisional tax payment is due within six months of the start of the year of assessment. So, if your or the company’s 2025 tax year commenced on 1 March 2024, the first provisional tax payment was due on 31 August last year.

This forward-looking payment is based on half of the total estimated tax for the full year, less employees’ tax already paid and any applicable tax credits and rebates. 

The upcoming second compulsory provisional tax payment deadline is the last working day of the year of assessment (on 28 February if your tax year started on 1 March). It works somewhat differently, and the rules are far stricter – with harsh penalties for under-estimating taxable income for the year.

A third optional payment can be made after the end of the tax year, but before the issuing of the annual income tax assessment by SARS each year.

Crunch time!

The provisional return for the second period to 28 February is retrospective and based on the total estimated tax for the full tax year (less the first period provisional tax and employees’ tax already paid, and any applicable tax credits and rebates).

The second estimate must be quite accurate as heavy under-estimation penalties apply.

• Where the taxable income is less than R1 million; and the second period estimate is less than 90% of the actual taxable income and less than the ‘basic amount’ (taxable income assessed for latest preceding year of assessment), a 20% penalty is imposed on the difference between the employees’ and provisional tax already paid and the lesser of normal tax on 90% of the actual taxable income or normal tax on the basic amount, after deductible rebates.
• Where the taxable income is more than R1 million; and the second period estimate is less than 80% of the actual taxable income, a 20% penalty is imposed on the difference between the employees’ and provisional tax already paid and the normal tax on 80% of actual taxable income after deductible rebates.  

Bear in mind that SARS can ask for your estimate to be justified, so you will need accurate records of all the source documents and calculations used to determine your estimate. Even so, SARS can increase the estimate if they are dissatisfied with your amount, and this is not subject to an objection or appeal.

To avoid this, SARS provides the following advice: “the amount of the estimate must be determined sensibly and by careful reasoning and judgment, in a mathematical manner, and using experience, common sense and all available information”. 

We can ensure this holds true for your provisional tax, be it corporate or individual.

Further penalties to watch out for…

• Even if you or your company owes no tax, a ‘nil’ return showing taxable income as equal to zero must still be filed timeously. Failing to do so will attract administrative penalties.
• If an IRP6 is filed more than four months after the deadline, SARS will consider a ‘nil’ return to have been submitted. Unless the actual taxable income really was zero, an under-estimation penalty will also apply to a late submission. 
• Not making your provisional tax payments on time will also result in an immediate late payment penalty, calculated at 10% of the provisional tax amount, regardless of whether it’s not paid at all or simply paid late.   
• Interest will also be levied on the underpayment of provisional tax because of under estimation, and on late payments.

Rely on our expertise 

The rules of provisional tax are daunting and confusing, and yet SARS holds provisional taxpayers responsible for their tax affairs. That’s why it makes sense to allow the experts to prepare and/or review your provisional tax and income tax returns prior to submission.

We will proactively take care of all the necessary steps to correctly calculate the estimated taxable income for the year of assessment, and to submit timeously, ultimately saving you time, money and hassle. 

Disclaimer: The information provided herein 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 us for specific and detailed advice.

© AccountingDotNews

“Being tax compliant and ‘paying your fair share’ is not just good for you, but also contributes to the positive growth of our country’s economy which in turn benefits all South Africans.” (SARS)

Being tax-compliant is a legal requirement for all South Africans. 

SARS says it will be unrelenting in driving voluntary compliance in pursuing the 2024/25 tax revenue target of R1,840.8 billion. 

To expand the tax base, detect dishonest taxpayers, deal with tax avoidance, expand debt collection, and improve service levels, SARS will:  

• Deploy more data science and artificial intelligence (AI).
• Broaden the tax base via third-party data sources (banks, medical schemes, fund administrators etc.
• Use predictive modelling to ensure all taxpayers and traders are registered, filing returns and paying dues. 
• Build detection capability using machine learning models and AI. 
• Enforce Customs and Excise trade laws against the illicit economy.
• Focus on dispute prevention and resolution.

Importantly, SARS is ready to act against those who willfully and defiantly ignore their legal obligations by misrepresenting their true economic status. SARS will impose significant legal and administrative costs on taxpayers and traders who deliberately fail to meet their obligations.  

What does tax compliance look like?

Your company needs to:

• Be registered with SARS for all the tax types applicable to your company.
• Have either merged or declared all registered tax reference numbers on eFiling.
• Timeously submit all tax returns and other documentation requested.
• Keep all registered particulars updated.
• Pay all tax debt on time, or timeously secure a payment arrangement or suspension of payment.
• Deregister the business if it is liquidated or closed.

Remember that your tax compliance status is not static: it changes according to your continued compliance with tax requirements month after month. Also remember that SARS can impose both monetary and criminal sanctions to enforce compliance. This is a significant business risk, because the burden of proof, should a taxpayer disagree with a decision taken by SARS, lies with the taxpayer. In the event that the taxpayer fails to argue their case successfully, they may find themselves in a position where penalties are suffered even if the error was unintentional or administrative in nature.

Benefit from the advantages of tax compliance

When you comply with your tax obligations, you give your business some compelling advantages.

• Eliminate the costs of non-compliance, like penalties, interest, and additional accounting and admin fees.
• Avoid the risk of criminal offences, which may result in a fine, imprisonment or both. Common offences include not registering for a tax type, or simply not submitting tax returns. 
• Proof of tax compliance is considered an indicator of good company management and legal good standing. 
• Good standing tax clearance certificates are often required for tender applications, bidding processes or prequalification as a supplier. They can also be needed to receive payment, or for foreign investment allowances. 
• Compliance enables companies to gain the confidence of clients, stakeholders and investors; take advantage of business opportunities; and prevent reputational damage.

Help is at hand

Now more than ever before, professional assistance is the best way to consistently meet all the tax compliance requirements across all the relevant tax types over the tax year, and in an always-changing tax landscape.

SARS itself recommends “employing an accountant, tax practitioner, or other tax professional to complete returns, or from whom to obtain advice before completing a return with entries that are not understood or adopting a position with tax implications” to ensure you have taken “reasonable care” when it comes to your tax affairs.   

We are well-versed in the requirements and deadlines of the various tax types and we’re also on top of the latest rules and processes. In a nutshell: we have the tax expertise to ensure you remain tax compliant all through 2025. 

Disclaimer: The information provided herein 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 us for specific and detailed advice.

© AccountingDotNews

• 07 January – PAYE submissions and payments.
• 20 January – End of Filing Season 2024 for Provisional taxpayers & Trusts.
• 24 January – VAT manual submissions and payments.
• 30 January – Excise duty payments.
• 31 January – VAT electronic submissions and payments, & CIT Provisional Tax payments where applicable.

Disclaimer: The information provided herein 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 us for specific and detailed advice.

© AccountingDotNews

“The hardest thing in the world to understand is the income tax.” (Albert Einstein)

With an increasing amount of business being conducted online, it’s perfectly possible to live in one country and earn an income in another. If you are conducting services for global corporations and earning foreign income in another country, you could get caught up in a world of tricky tax situations. Under these circumstances, you can find yourself being taxed twice, both in the country where the business is conducted and here at home in Mzansi.

To prevent this scenario and encourage South African residents to bring valuable foreign income into the country, the government has enacted Double Taxation Agreements (DTAs) with 79 foreign powers. If applied correctly at tax time, a DTA should mean you don’t pay tax twice. But how does this work, and just where are the pitfalls?

Check your residency status

Many people incorrectly believe that DTAs mean that income earned in a foreign country is taxable in that country. While the exact terms of each DTA are different, most DTAs actually give taxing rights on employment income to the residential country, unless the services are rendered elsewhere. This means that if you live in South Africa, you should pay all of your taxes in South Africa. On this basis, any taxes also paid to the government of the country in which the income was earned might qualify you for tax relief in South Africa.

Surprisingly though, in some cases, and depending on the domestic legislation in the particular country, an individual may find themselves tax resident in both South African and the other country, regardless of where you live. This can have enormous implications on your legal obligations and the taxes you end up paying. Luckily, all DTAs cater for such instances, with a set of rules to apply to determine which of the two countries you will ultimately be deemed tax resident in.

That’s why it’s vital to ask your accountant to first examine the laws and determine just where you are officially resident and how the specific DTA applies in your case.

Do you need a tie-breaker?

Some South African residents working in foreign countries should normally be given tax residency certificates by the country where they make their income. But don’t fall into the trap of assuming this means you’re not a South African tax resident. More likely you now have dual residency for tax purposes and will be required to apply a tie-breaker test under the specific terms of the relevant DTA to determine just where and how you need to pay taxes.

For something that was supposed to make things simpler and decrease the tax burden on residents earning money overseas, DTAs can actually be somewhat onerous.

Does the DTA even apply?

The fact that there’s a DTA between South Africa and the country of your income may fool you into thinking you’re automatically exempt from paying taxes in one of the two countries, but this is not so. DTA relief is something that must be proven in South Africa before it can be granted. SARS will want proof of your claims – only once they have satisfied themselves that the income is earned offshore will the DTA exemptions apply.

The bad news is that if you do not have the relevant supporting documentation, SARS may choose to view the omission as a material non-disclosure. The good news is that your accountant can help you assess what documentation you need.

If you’re earning foreign income but living in South Africa, please speak to us. We can help you to avoid paying more tax than necessary. Or, worse still, falling foul of the law.

Disclaimer: The information provided herein 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 us for specific and detailed advice.

© CA(SA)DotNews