The classification of a taxpayer as ordinary or provisional must be determined each year. A person may be an ordinary taxpayer one year and a provisional taxpayer the next, or vice versa.
Knowing your category is crucial, as submission and payment deadlines differ. An incorrect determination can lead to unexpected penalties, warns Mike Teuchert, tax partner at Forvis Mazars.
The annual tax filing season for individuals generally runs from July to January, with distinct timelines for auto-assessments, ordinary taxpayers, and provisional taxpayers.
Changing timelines
The timeframes also differ from year to year.
In 2019 ordinary taxpayers who submitted their returns through the MobiApp and eFiling had from 1 July to 4 December, and those who submitted them at a South African Revenue Service (Sars) branch office had from 1 August until the last day of October. Provisional taxpayers meanwhile had until the end of January.
Last year, the filing season for individuals became much tighter.
Taxpayers with less complicated affairs received Sars auto-assessments from 7 to 20 July while ordinary taxpayers could start submitting their returns from 21 July to 20 October. Provisional taxpayers had from 21 July until 19 January.
Individuals are provisional taxpayers if they earn income that is not remuneration, for example income from rental, business activities or investment income, or they receive remuneration from an unregistered employer (such as a foreign employer).
Provisional taxpayers pay earlier, and on estimated income
Sars explains that provisional tax is not a separate tax from income tax. It is a method of paying the income tax liability in advance. It requires the taxpayer to pay at least two amounts in advance during the year of assessment.
The taxpayer is expected to estimate their taxable income and make the payment on the estimate. A third payment is optional after the end of the tax year, but before the issuing of the assessment by Sars (generally in September).
The first payment date is at the end of August, and the second at the end of February.
Should the actual taxable income for the year exceed R1 million, and if the estimated taxable income for the second provisional tax submission was not at least within 80% of the actual taxable income for the year, a 20% penalty will be imposed on the tax difference.
Should the actual taxable income for the year be less than R1 million, and if the estimated taxable income for the second provisional tax submission is not at least within 90% of the actual taxable income for the year, a 20% penalty will be imposed on the lesser of the tax difference between the estimate and either 90% of the actual taxable income for the year or the basic amount.
Forvis Mazars advises individual taxpayers to consider any capital gains transactions, such as the sale of shares, primary residence or investment properties, which would need to be accounted for and included in the calculation of the provisional tax payable for the year.
What type of taxpayer are you this year?
Teuchert says people think because they were provisional taxpayers the previous year, they must still be a provisional taxpayer this year.
But if their situation has changed and they wait until January next year to file their annual return, they will be a couple of months late and can expect late-payment penalties.
A 10% penalty will be levied on late payments.
Sars has not yet announced the filing deadlines for the different categories (auto-assessments, non-provisional and provisional). However, non-provisional taxpayers have a much shorter timeframe (generally from July to October) in which to file their returns.
According to the Sars website most salary earners are not provisional taxpayers, if they have no other sources of income. It is important to note that receiving exempt income does not make you a provisional taxpayer.
Teuchert’s advice is to determine which category you fall into sooner rather than later.
Issuing of tax certificates
Third-party data providers such as medical schemes, pension funds and banks start issuing tax certificates before filing season kicks off.
If you are getting distributions from a trust or making contributions to a retirement fund or medical aid fund, make sure you have the correct information about the distributions and contributions, he adds.
The same goes for rental, interest or dividend income. If you are receiving more than one employment tax certificate (IRP5) the chances are good that you will be a provisional taxpayer.
“The point is to be on top of your tax affairs earlier rather than later,” says Teuchert. “We have also been seeing that the time periods in which to file has been creeping forward every year. People have less time to get their affairs in order.”
This article was republished from Moneyweb. Read the original here.
