Estimating your provisional tax
Remember that different rules apply according to whether your taxable income exceeds R1m or not –
- Taxable income up to R1 million
If your finally assessed taxable income is under R1 million, your provisional estimate on February 28 must be equal to the lesser of either –
– The “basic amount”* or
– 90% of the actual assessed amount.
* The “basic amount” is taxable income calculated as per your last tax assessment less capital gains and any lump sum payments in that year – in other words last year’s taxable income adjusted for one-off amounts.
- Taxable income greater than R1 million
There is no “basic amount” and your provisional estimate must be 80% of the final tax assessed.
Changes to provisional tax rules – the good news
- When estimating your provisional tax you will no longer need to include lump sum receipts from retirement funding, lump sum withdrawals from retirement funding or lump sums from severance payments.
This will prevent penalties on underestimation of provisional tax due to not taking such one-off payments into account.
- The penalty based on the underestimation of the second provisional payment will now take into account all taxes paid (including the first provisional payment and any employee taxes) as at February 28. Previously, the penalty was based on the underestimation of the taxable income shown in the second provisional return.
Penalties – the bad news
An automatic penalty of 20% of the underestimated amount will be levied by SARS. The days of trying to convince SARS officials that there were valid reasons for underestimating your provisional tax are gone.
Plan your provisional payment and get professional advice!
Thus, while it will be easier to estimate provisional tax, the 20% underestimation penalty will automatically kick in. The Commissioner may waive the penalty if you can convince SARS that your provisional tax was “seriously calculated” and not deliberately or negligently understated taking into account factors available at the time you made your payment. However, you are now arguing from a position of weakness as the penalty must be paid upfront – the Commissioner will have your money and convincing SARS to refund the penalty will no doubt be a time-consuming and potentially costly exercise.
So, take time to ensure that your provisional payment is accurate enough to avoid penalties. This is a time where it is worth speaking to your accountant.
Lastly, don’t forget if you have made capital gains in the tax year, these must be included in your provisional estimate.