It is that time of the year again where taxpayers have to submit and pay the second provisional tax return for the year. This needs to be submitted and paid on or before on or before 28 February 2019.
WHAT IS PROVISIONAL TAX?
Provisional tax is not a separate tax. It is a method of paying tax due, to ensure the taxpayer does not pay large amounts on assessment (end of tax year and when the tax season opens later in the year,) as the tax liability is spread over the relevant year of assessment. It requires the taxpayers to pay at least two amounts in advance, during the year of assessment, which is based on estimated taxable income. A third payment is optional after the end of the tax year, but before the issuing of the assessment Final liability, however, is worked out upon assessment and the payments will be off-set against the liability for normal tax for the applicable year of assessment.
Who is it for?
Any person who receives income (or to whom income accrues) other than a salary is a provisional taxpayer. Companies automatically fall into the provisional tax system. There is no formal registration or de-registration needed to be a provisional taxpayer. If a taxpayer is liable for provisional tax, he or she merely needs to request and submit an IRP6 return via eFiling.
A few tips:
- Do not leave the submission until the last day. A lot can go wrong. Bank payments may fail to go through on the last day and you will face penalties for late payments
- Always ensure that you are making your estimates on accurate and up to date accounting records. You do not want to come to actual tax submission only to find out that you should have paid more to the tax man
- For individuals, capitals gains often get missed. If you have investments or properties that you dispose off during the year, the gain from the sale will need to be included in your provisional tax estimate. If you are not sure about your investments CGT, request a provisional statements from your finance house
- If you have rental income, also ensure that you also include this in your estimates. Refer to our previous blog on tax on rental income to understand which kind of expenses you can deduct for tax purposes. The point to bare in mind is to keep your personal and capital expenses out of your estimates. These can easily deflate your taxable income and can get you in trouble in the future, when you are selected for an audit.
- Individuals should make sure that they aggregate all their income from all sources and take into account other allowable deductions like RA and medical aid tax credits
- Remember, you will still need to submit your actual tax return when the tax season official opens. This is around June each year and individual taxpayers have until January of the following year to do their submissions on eFiling.
- For companies, this is the best time to think about tax optimisation. That is, it is better to take more salaries, a dividend or to leave the money in the company. Speak to your accountant and ask them how to pay as little tax as is legally possible or better still give us a call.