NB: If you are a provisional tax payer, August 2020 is the deadline for paying your provisional taxes.
During times like these we find many clients are making a plan to pivot, evolve and survive during their current circumstances. So if you have started a new business, side-hussle or have been paying yourself sporadically through your business it is time for you to ensure your taxes are in order – August is the deadline for provisional tax payers.
- This is the tax paid on your taxable income;
- Everyone earning an income in South Africa is liable to pay income tax;
- If you earn over the threshold (Feb 2021 year: R83,100) you are required to submit a return;
- Likewise, if you have more than one form of income you will need to submit a return.
- If you are in full time employment you have your income tax deducted off your salary in the form of PAYE (Pay as you Earn).
If you work for yourself, have side-hussles, have other forms of income (like rental or investments) then you have not have paid PAYE nor any other form of tax on those income streams, in which case you fall into the category of Provisional Tax payer.
SARS explains the reason for this as follows:
- Provisional tax is not a separate tax from income tax.
- It is a method of paying the income tax liability in advance, to ensure that the taxpayer does not remain with a large tax debt on assessment.
- Provisional tax allows the tax liability to be 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 are based on estimated taxable income.
- A third payment is optional after the end of the tax year, but before the issuing of the assessment by SARS.
- On assessment the provisional payments will be off-set against the liability for normal tax for the applicable year of assessment.
Provisional Tax Payment Timing
There are three payment dates for each tax period for provisional taxes:
- First payment is made 6 months after the start of the tax year:
- If your tax year is end of Feb 2021 this would be end of August 2020
- This should be 50% of your anticipated tax bill for the year
- Second payment is due at the end of the tax year:
- End of Feb 2021
- This should be the balance or 100% of your tax bill
- Third payment is not compulsory but is due:
- Within 6 months of year end
- This would be a top up if necessary.
Provisional Tax Calculation
This is the calculation due in August 2020 for the period ended Feb 2021:
The First Period:
- Half of the total estimated tax for the full year;
- Less the employees tax for this period (6 months);
- Less any allowable foreign tax credits for this period (6 months).
An example of a Provisional Tax Calc
Note 1 – your taxable income is your net income you need to pay taxes on. This is your total income less all the expenses you qualify to deduct per the income tax act. I.e. all expenses incurred to generate the income you are being taxed on. In these COVID19 circumstances a lot more people are able to qualify for deductions related to home office so be sure to consider those.