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Use these eight easy steps to calculate provisional tax

by , 11 June 2015
Does the thought of having to calculate provisional taxes gives you headaches? Are you afraid of making mistakes that SARS will sanction later?

There are solutions to any problems and closely following the right process for calculating provisional taxes is one of them. Below, we show you what to do.

Use these eight steps to work out your provisional tax

Step #1:

Calculate your estimated taxable income for the tax year. This is the most important step.

Example 1 – Individuals

You've earned a basic salary of R400 000, paid R25 000 to a medical aid during the year (one beneficiary), and received rent from your rental property of R100 000. Your property expenses are R20 000. Your taxable income would therefore be R400 000 + R100 000 - R20 000 = R480 000.

Example 2 – Companies

Your company made an annual profit of R750 000. There are no other adjustments for wear and tear or other complexities (and there can be many).

Remember:  If the taxable income is over R1 million, you'll automatically be bounced to Tier two.

Step #2:

Calculate the amount of tax you'll pay on this  taxable income (refer to the SARS tax tables on SARS website).

Example 1 – Individuals

The taxable income is R480 000. Tax on this for the 2016  tax year is R124 383, less your medical aid tax credits of  R3 240 (R270 * 12) = R121 143.

Example 2 – Companies

Tax on R750 000 taxable income will be R210 000  (R750 000 x 28%).

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Step #3:

Subtract the annual tax rebate from this (again, in the SARS tax tables). This gives you the total tax you'll have to pay for the tax year.

Example 1 – Individuals

The 2016 primary rebate is R13 257 (let's say you're under 65 years old). Tax remaining after the rebate is  therefore R121 143 - R13 257 = R107 886.

Example 2 – Companies

Companies don't get any annual tax rebates, so there is  nothing to deduct.

Step #4:

If it's the 1st  provisional tax return you're calculating, then subtract half of the total tax payable for the year and you're left with an amount due for the first period of the tax year. (Skip this step if you're calculating the 2nd provisional tax return).

Example 1 – Individuals

This would work out to be R107 886 / 2 = R53 943.

Example 2 – Companies

This would work out to be R210 000 / 2 = R105 000.

Step #5:

Subtract any employee's tax deducted for the tax year (only the first six months if you're completing the first provisional return).

Example 1 – Individuals

The first provisional return would be as follows:  

R53 943 and let's say, just for this example, you've paid R45 000 in PAYE in the first six months.  R53 943 - 45 000 = R8 943.

Example 2 – Companies
The company paid R150 000 for its employees in PAYE.  Remember, if a company pays employees tax for its staff, then the company mustn't deduct this under Step 5! The employees tax was paid on behalf of the employees, and not the company.

Your first provisional return would still be R105 000.

Step #6:

Subtract any allowable foreign tax credits for the tax year (only the first six months if you're completing the 1st provisional return)

Definition: Foreign Tax Credits: This is when you've paid tax on income in another country, and through tax agreements between RSA and that country, you can 'deduct' that foreign tax from the local tax payable.

Example 1 – Individuals

You paid tax in the USA on interest, and this converte  into R1 000 for the first six months. So, R8 943 - R1 000  = R7 943.

Example 2 – Companies
Same as the above. So R105 000 - R1 000 = R104 000.

Step #7:

Add any outstanding SARS penalties and interest on this amount. This will either already be on your provisional tax return, or you can get this information from SARS and include it on your return.

Example 1 – Individuals

Luckily, you don't have any penalties or interest on your account. You should therefore pay R7 943 for the first provisional tax period.

Example 2 – Companies

The company had an outstanding penalty and interest due to SARS of R6 000. So, R104 000 + R6 000 = R110 000.

Step #8:

If it's the second provisional tax return you're calculating, then be sure to subtract any provisional tax  you paid for the first provisional tax period.

Example 1 – Individuals

Using the above, your second provisional tax payment would be R124 383 - R3 240 (medical tax credits) - R13 257 (primary rebate) - R90 000 (PAYE for the full  year) - R2 000 (foreign tax credit for the year) – NIL (no penalties / interest) - R7 943 (1st  provisional payment)  = R7 943 due for the 2nd  provisional return.

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