Ten top tips for provisional taxpayers
The deadline for submitting the second provisional return is the end of this month
THE SECOND provisional return for the March 1, 2018 to February 28, 2019 tax year is due at the end of this month, says Marc Sevitz, a co-founder of TaxTim and a chartered accountant.
The second provisional return is backward-looking: you have to square up with the SA Revenue Service (Sars), he said. Your first provisional return was forward-looking, and you had to estimate your income. Now that you are probably certain, or almost certain, what your income was, Sars expects you to settle.
Here are 12 things you should know about submitting your provisional tax return:
1 Don’t offset losses – Sars may not allow this. If you run a business or rent out a property that is running at a loss, don’t offset this loss against other taxable income you may have when calculating your estimated taxable income for your provisional return. Sars may opt to ring-fence the loss and therefore not allow it to be deducted from your current income. It is better to err on the side of caution and assume this is the route that Sars will follow.
2 If you receive employment income, but you don’t pay PAYE, you are a provisional taxpayer. If you are employed, but your employer doesn’t deduct Pay-As-YouEarn (PAYE) tax from your salary (and you earn above the tax threshold, which is R78 150 for taxpayers under 65), you must register as a provisional taxpayer and pay tax bi-annually on your salary. An example where this may happen is if you work for a foreign employer who is not registered with Sars. Many taxpayers in this situation simply declare their foreign salary annually on their tax return. However, if you haven’t paid provisional tax during the year, Sars will penalise you.
3 Under-estimation penalty. It may be challenging to estimate your annual taxable income when you make the first payment, which is only six months into the year. This estimate doesn’t attract a penalty if it is too low, but you need to ensure your second estimate is reasonably accurate, to avoid an under-estimation penalty.
The penalty depends on whether your taxable income is more than or less than R1 million.
If your taxable income for the year is R1m or less, Sars will impose an under-estimation penalty if your estimate in your second provisional return turns out to be less than 90 percent of your actual annual taxable income on your ITR12, and is also less than your “basic” amount.
The penalty will be calculated at 20 percent of the difference between the normal tax payable on your estimate and the lesser of:
◆ Tax on 90 percent of your actual taxable income; and
◆ Tax on your “basic” amount. If your taxable income is more than R1m, you need to ensure that your estimate of taxable income on your second provisional return is no less than 80 percent of your actual taxable income. Sars doesn’t consider the “basic” amount when a taxpayer’s taxable income is more than R1m.
The penalty will be calculated at 20 percent of the difference between the normal tax payable for your estimate and tax calculated on 80 percent your actual taxable income.
4 Late payments. Sars is quick to levy a late-payment penalty equal to 10 percent of the total tax payable even if you are only a day late. Not only that, but Sars will add interest at their prescribed rate (currently, 10 percent a year).
Be sure to check the deadline on the Sars website for both the August payment and the February payment and set an alert on your calendar so you never pay late.
5 Late submission. If you file your IRP6 more than four months after the deadline, Sars considers you to have submitted a “nil” return (in other words, your taxable income is equal to zero). Unless your taxable income is, in fact, zero, this will result in the 20 percent under-estimation penalty being imposed.
6 Submit a nil return if applicable. Even if you owe no tax but are a provisional taxpayer, you should still submit a provisional (nil) return, to ensure an unbroken filing history with Sars.
7 Make a third “top-up” payment to avoid interest. If you realise after the tax year end that you have underpaid your tax for the preceding year, it would be wise to make a voluntary third payment by the end of September. Many people don’t do this and opt to pay the balance due a few months later when they submit their tax return, but then they receive a nasty surprise when they are charged interest on underpaid provisional tax on their tax assessment.
8 Don’t overlook investment income and capital gains. If you own investments, it may be worth requesting a provisional statement from the financial institution in February to ensure you include your interest and capital gains in your year-end estimate of taxable income.
Often, taxpayers do not consider their capital gains and/or interest earnings until they declare them in their annual tax return and by then it is usually too late to avoid the under-estimation penalty on their second provisional payment.
9 Keep supporting calculations. Sars may ask you to justify your estimate and can increase it if they are dissatisfied with the amount. The increase of the estimate is not subject to an objection or appeal.
10 Last day of February falls on a weekend or public holiday. If the last day for submission falls on a public holiday or weekend, the submission must be made on the last working day prior to the public holiday or weekend. The second provisional return for 2019 is due on Thursday, February 28. | Supplied by TaxTim