With provisional tax, you estimate and pay your taxes in two payments in the financial year. It's one payment every six months, instead of having to pay one big amount at the end of the tax year.
Your first payment is due by 31 August every year.
If SARS isn't happy with your estimate they will charge you with a 20% underestimation penalty. You'll pay these penalties on the amount SARS thinks your estimate should be.
Worse, if you submit your provisional tax return late, SARS will deem your return as 'nil' and impose a non-compliance penalty. This is 10% of the amount of provisional tax you have to pay.
If you estimate your payments incorrectly, you can make a third payment. It's a voluntary top up. This way you can avoid the extra penalties by being able to pay SARS the full amount you ow them for the year.
But if you use these seven steps, I guarantee you can calculate your provisional tax correctly every single time.
Has SARS sent YOU a nasty penalty assessment because your provisional taxes were incorrect?
Picture it: You submitted your provisional taxes before the 28 February deadline.
And you were pretty confident that you had everything right…
But now you're staring at a nasty letter from SARS, demanding you pay penalties for the errors you made.
You'll be paying SARS an administrative penalty of up to R4 000! And this penalty amount doubles after thirty days… Plus interest
. Oh, and don't believe for one second that SARS will listen to your excuses… Pay now, argue later, it says.
Getting the thumbs-up from SARS isn't simply about handing in a return on time. It's also about getting the estimates, calculations and paperwork 100% right… Here's how
Use these seven steps to calculate your provisional tax correctly
Calculate your estimated taxable income for the tax year.
This is your most important step.
Calculate the amount of tax you'll pay on this taxable income.
You can do this by referring to the SARS tax tables in Chapter P01 of the Practical Tax Handbook.
Subtract the annual tax rebate from this amount.
Again, you should refer to the SARS tax tables in your handbook.
This will give you the total amount that you'll have to pay for the tax year.
How to make yourself invisible to SARS
The key to reducing how much tax you pay is staying off SARS' radar.
SARS has conducted 1.8 million audits. They've added 100s of new tax collectors and auditors to their payroll and each one has his own collection targets to meet.
This means two things:
1.If you're not compliant, your chances of an audit this year have just doubled, and
2.You will pay more in penalties.But there are 139 perfectly legal ways for you to make yourself invisible to SARS. Here's how…
As it's the first provisional tax return you're calculating, take away half of the total tax payable for the tax year. This will be the amount you have to pay for the first period of the tax year. The balance will be paid in February next year. This is because you pay your provisional tax in two amounts during the tax year.
Subtract any employee's tax deducted for the tax year.
Subtract the first six months for the first provisional tax return.
Subtract any allowable foreign tax credits for the tax year.
Add any outstanding SARS penalties and interest on this amount.
This information will either already be on your provisional tax return, or you can get it from SARS and include it in your tax return.
For all the detailed calculations and examples for these seven steps, turn to chapter P01: Provisional Tax in your Practical Tax Handbook. Don't have a copy yet? Get yours now.
Until next time,
Managing Editor: The Practical Tax Handbook