You qualify as a provisional taxpayer if you earn money that SARS is not aware of. In other words, you are not earning a monthly salary from which tax is deducted by your company and you are supplied with an IRP5.
You could fall into this category if you are a landlord, you run a small business or are a freelancer and if you have investments.
Provisional tax is not another entity apart from income tax. SARS defines it as a practice of paying income tax liability in advance so that the taxpayer is not saddled with a massive debt when assessed.
SARS will require provisional taxpayers to pay twice during the year of assessment, and this is based on taxable income. When you are assessed, what has been paid in provisional tax already will be considered regarding the payment of normal income tax.
Find out first hand
If you are in any doubt regarding your status, check with SARS. It is best to do this anyway if you don’t have a tax accountant or a tax advisor. Then you can find out first-hand what qualifies you as a provisional taxpayer and what is required of you.
The amount of tax needed to be paid is calculated on the estimated taxable income for the year, divided up into two payments:
- The first payment will be half of your estimated tax for the whole year, taking off employees’ tax for the six months in question and any allowed foreign tax credits.
- The second payment will be the full estimated tax for the year, offset by employees’ tax paid for the whole year, any foreign tax credits and the amount already paid in the first payment.
With e-filing, you must request your IRP6 from SARS and this can be made available through e-filing. You must register for e-filing first, and this will all the processes much easier for you.
If you need to find out more about registering for e-filing and processing your returns by e-filing by contacting SARS. It is advisable that you visit your nearest SARS contact centre to find out more.
Don’t get it hopelessly wrong
It is best for any provisional taxpayer to find out what the deal is regarding provisional tax as many get this hopelessly wrong. Not understanding your provisional tax obligations could see you paying a lot more than you should or, horrors, much less than you should!
There are exclusions to the provisional tax rule, and these are:
- Taxpayers 65 years or older if the taxable income for the year being assessed does not exceed a certain amount if the person only receives income via remuneration or passive income.
- Taxpayers younger than 65 could qualify for exemption if the taxable income for the year being assessed does not exceed a certain amount and a fixed amount constitutes passive income.
Don’t forget that you must file your correct or your changed banking details with SARS. You may be due a refund, and the way that this will be processed is by payment directly into your bank account.
If you haven’t given these details to SARS, there will be a hullabaloo. Many people have gone through much pain and angst with SARS having to provide the correct banking details, which most likely is a good thing in chances of fraud.
The thing is it is a lengthy process once you start doing the bank-change thing after the fact, and it could end up extending the period between handing over the details and getting it paid into your account quite considerably.
The worst thing you can do is note that SARS owes you a refund and you haven’t given them the correct details. This is being stressed because it often happens when you ask why it hasn’t been paid and then realises you haven’t given them the correct details.
So, whether a provisional or PAYE tax payer…. remember, don’t blow the bank bit!