What is provisional tax?
Provisional tax is not separate from income tax but is simply a means of paying your income tax liability during the year of assessment, instead of owing a large tax liability when you submit your income tax return during filing season. Provisional tax is therefore an advance payment of a taxpayer’s normal tax liability.
Who should pay provisional tax?
Provisional taxpayers are those who receive income other than remuneration. If you receive income such as rental income from a property, interest income from investments or other income from a trade, you will be a provisional taxpayer.
However, exceptions can apply (see website www.sars.gov.za for list of exceptions). Generally, the rule is if you only receive remuneration, then you are regarded as a non-provisional taxpayer.
However, a person who receives remuneration can be liable for provisional tax if the remuneration is received from an employer who is not registered as an employer with Sars (for example, South Africans working for foreign embassies in South Africa).
When and how should it be paid?
A provisional taxpayer is required to make two provisional tax payments: at the end of the first six months into the year of assessment (August) and on the last working day of the year of assessment (this year it will be February 26). This is for taxpayers with the year of assessment ending February.
Taxpayers may make an additional provisional payment, generally known as the third or top-up payment, after the end of the year of assessment in order to reduce a liability for interest that would arise should their first two provisional payments be inadequate.
For taxpayers with the year of assessment ending February, the additional provisional tax payment must be made on or before September 30. Note, provisional taxpayers must also submit an income tax return during annual filing season.
Provisional tax liability is calculated on estimated taxable income, including current taxable capital gains, for that particular year of assessment.
These estimates of taxable income are submitted to Sars on an IRP6 return.
The normal tax payable on the estimated taxable income is calculated at the relevant rate of tax for that respective year of assessment. Provisional tax returns are mandatory if you meet the definition of a provisional taxpayer.
A provisional taxpayer must submit an IRP6 return, even if the end-result reflects no provisional tax payable.
An IRP6 return can be requested and submitted via the following channels:
• Sars eFiling at www.sarsefiling.co.za
• A Sars branch
• The Sars Contact Centre on 0800 00 7277.
Information supplied by SARS.
For more on provisional tax, go to www.sars.gov.za (types of tax/provisional tax).
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