9 Things South Africans Need To Know About Provisional Tax

In this article we will address some of the most common questions we receive regarding provisional tax.  In publishing this article, we hope to place valuable information within reach of more people and in doing so indirectly assist more taxpayers with their preparation for this year’s provisional tax submissions.

What is Provisional Tax?

Let us start off by clarifying that provisional tax is not a separate tax from income tax.  This tax type is to assist taxpayers to pay their income tax liability in installments rather than as a lump sum at the time of assessment. The two compulsory installments are offset against the assessed annual tax liability and a third voluntary installment may be made to avoid understatement penalties.

Who has to submit Provisional Tax returns?

The following entities/persons are obligated to submit returns:

  • Companies (all companies are automatically registered for provisional tax);
  • Individual taxpayers who receive a salary from an employer who is not registered for PAYE;
  • Individual taxpayers who receive any form of income other than remuneration, with the exclusion of exempt income. This would include taxpayers who are self-employed, who earn rental income, who have a secondary business / side-hustle, or receive annuity income from multiple sources;
  • Any person informed by the Commissioner.

Who does not have to submit Provisional Tax returns?

The following entities/persons do not have to submit returns:

  • Approved public benefit organisations or recreational clubs approved by the Commissioner;
  • Body corporates, share block companies and certain associations of persons;
  • Non-resident owners or charterers of ships or aircraft;
  • Any natural person who does not earn any income from carrying on a trade, provided that person’s taxable income will not be more than the tax threshold or the taxable income (earned from local or foreign interest, foreign dividends, the renting of fixed property and remuneration from an unregistered employer) of that person will not exceed R30 000;
  • A small business funding entity;
  • A deceased estate.

When are submissions due?

Provisional tax returns must be submitted twice per annum.  The first provisional tax submission is due by the end of August of each year whilst the second submission is due by the end of February each year.  A voluntary third submission is permitted within 6 months from the end of the year of assessment.

How do I calculate the tax liability?

The amount of provisional tax payable is calculated on the estimated taxable income for the financial year and the process is as follows:

The First Submission (compulsory):

  • Calculate the estimated taxable income for the year;
  • 50% of the total estimated tax liability for the full year is payable by the end of August;
  • Less any employees tax paid for this period of 6 months, if applicable;
  • Less any allowable foreign tax credits for this period of 6 months, if applicable.

The Second Submission (compulsory):

  • Calculate the estimated taxable income for the year;
  • Less the employees tax paid for the full year, if applicable;
  • Less any allowable foreign tax credits for the full year, if applicable;
  • Less the amount paid for the first provisional period.

The Third Submission (voluntary):

  • Calculate the estimated taxable income for the year;
  • Less the employees tax paid for the full year, if applicable;
  • Less any allowable foreign tax credits for the full year, if applicable;
  • Less the amount paid for the 1st and 2nd provisional tax periods.

What exemptions, rebates and deductions are available?

Individual taxpayers

The following sources of income are exempt from tax:

  • Local interest of less than R23,800 if you are under 65;
  • Local interest of less than R34,500 if you are 65 and older;
  • Income from a tax-free investment.

Remember to apply the available tax rebates when calculating your tax liability.

Tax Rebate 2021
Primary R14,958
Secondary (65 and older) R8,199
Tertiary (75 and older) R2,736

Also keep in mind the tax threshold.  If your income is not derived from carrying on a trade and is less than the threshold, there is no tax liability.

Age Group 2021
Under 65 R83,100
65 an older R128,650
75 and older R143,850

The medical aid tax credit as well as retirement annuity contributions and pension/provident fund contributions can also be deducted when determining the tax liability.

The medical aid tax credits available are as follows:

Per Month 2021
For the taxpayer or for a member or dependent of a medical scheme or fund where the taxpayer him- or herself is not a member of a medical scheme or fund R319
For the taxpayer and one dependent or in respect of two dependents where the taxpayer him- or herself is not a member of a medical scheme or fund R638
For each additional dependent(s) R215

This article does not cover the details related to the maximum deduction available for retirement annuity contributions and pension/provident fund contributions and we advise to consult with your tax consultant in this regard.

When receiving rental income remember to deduct permitted expenses incurred related to the property and when receiving trade income to deduct the permitted business operating expenses.

Legal entities

The tax liability is calculated on the profit of the business, thus all the income received or accrued during the financial year less all permitted operational expenses.

What are the applicable tax rates?

Individual taxpayers

The tax rate applicable will depend on the total annual income of the individual taxpayer as per the current published tax tables and can range from 18% – 45%.

The tax rates for individuals for the 2021 tax year are as follows:

Taxable Income (R) Rates of Tax (R)
1 – 205,900 18% of taxable income
205,901 – 321,600 37,062 + 26% of taxable income above 205,900
321,601 – 445,100 67,144 + 31% of taxable income above 321,600
445,101 – 584,200 105,429 + 36% of taxable income above 445,100
584,201 – 744,800 155,505 + 39% of taxable income above 584,200
744,801 – 1,577,300 218,139 + 41% of taxable income above 744,800
1,577,301 and above 559,464 + 45% of taxable income above 1,577,300

Legal entities

The normal tax rate applicable for legal entities are as follows:

  • Companies and close corporations – 28%,
  • Trusts – 45%,
  • Personal service providers – 33%.

The 2021 tax rates for entities registered for small business tax are as follows:

Taxable Income (R) Rate of Tax (R)
1 – 83,100 0% of taxable income
83,101 – 365,000 7% of taxable income above 83,100
365,001 – 550,000 19,733 + 21% of taxable income above 365,000
550,001 and above 58,583 + 28% of the amount above 550,000

The 2021 tax rates for micro businesses registered for turnover tax are as follows:

Taxable Income (R) Rate of Tax (R)
1 – 335,000 0% of taxable income
335,001 – 500,000 1% of taxable turnover above 335 0000
500,001 – 750,000 1 650 + 2% of taxable turnover above 500 000
750,001 and above 6 650 + 3% of taxable turnover above 750 000

This article will not deal with small business tax or turnover tax in detail and we advise you consult with your tax consultant in that regard.

How do I pay provisional tax?

Taxpayers can complete the entire process of filing their returns and making payment to SARS via SARS eFiling.   If you are unsure how to use the SARS eFiling system, we would recommend that you contact your accountants to do your Provisional Tax submission on your behalf.

What Covid-19 Tax relief measures are available to me/my business?

As part of the Covid-19 tax relief measures, tax compliant businesses are allowed to defer a portion of their provisional tax liability without incurring penalties or interest for a period of 12 months, commencing 1 April 2020 and ending on 31 March 2021. The tax relief measures include the following:

  • Compliant taxpayers only have to pay 15% of their total estimated tax liability when submitting the first provisional tax return, due from 1 April 2020 to 30 September 2020.
  • Compliant taxpayers only have to pay and 65% (total payment required for provision one and two) of their total estimated tax liability when submitting the second provisional tax return, due from 1 April 2020 to 31 March 2021.
  • Compliant taxpayers with deferred payments will be required to pay the remaining 35% of their estimated tax liability when submitting their third provisional tax return in order to avoid understatement penalties and interest on assessment.

Just some definitions on the above you need to be aware of:

A “qualifying taxpayer’’ is a company, trust, partnership or individual that conducts a trade during the year of assessment ending on or after 1 April 2020 but before 1 April 2021, has a gross income of R100 million or less during that year of assessment and is tax compliant.  If a provisional taxpayer does not conduct a trade during the year of assessment ending on or after 1 April 2020 but before 1 April 2021, such a person or entity will not be considered a qualifying taxpayer.

“Gross income” does not include more than 20% in aggregate of interest, dividends, foreign dividends, royalties, rental from letting fixed property, annuities and any remuneration received from an employer.

In Closing

When an entity has an accumulated assessed loss brought forward from a previous year, remember to account for this in the current year when estimating tax liability.  The assess loss can be offset against current year profits and future year profits until it has been completely exhausted prior to a tax liability being incurred.

Even if there is no tax liability to declare, remember to always submit a zero return to ensure you remain tax compliant.

If you require any assistance calculating your tax liability, submitting your returns, or if you require more technical information on the matter, please feel free to contact us immediately.

Sources:

Income Tax Act 58 of 1962

Need Help with your Accounting or Taxes? Click Here!

Share This Story, Choose Your Platform!

Become A Contributor

Become A Contributor And Tell Your Story

Share your knowledge and experiences, and we will share it with the world.
Become A Contributor