Presented by Mphagahlele Ndlovu CA (SA), MCom Taxation (Wits) 18 February 2016

Objectives: A. Define who pays provisional tax B. Timing of provisional tax C. How to calculate provisional tax D. Calculate ESTIMATE E. Discuss and calculate provisional tax for  Natural persons  Companies F. Calculate penalties & interest

 Person who RECEIVES income that is NOT - Remuneration - Allowance - Advance  Company  Who is NOTIFIED by Commissioner ◦ Excl  PBO, Recreational clubs and body corporates

 2016 YOA - par 18(1)(c)  From the 2016 year of assessment, the exemption from the payment of provisional tax will be aligned for all natural persons. A natural person who does not derive income from the carrying on of a business will be exempt from provisional tax, if: his taxable income for that year will not exceed the tax threshold, or his taxable income from interest, foreign dividends and rental from the letting of fixed property will not exceed R (par 18(1)(c)). (If there is no taxable portion of investment income left after, for example, taking into account the applicable interest exemptions (s 10(1)(i)) and only taxable remuneration remains, the person will not be regarded as a provisional taxpayer.) NB!!!

2016 year of assessment 1 March Feb Aug Sep months after y/e Year end y/e + 7 months (unless not Feb Year end= 6 months) y/e + 7 months (unless not Feb Year end= 6 months) 31 Aug year of assessment

1 st payment Estimated tax liability for year ◦ Calculate the tax payable. ◦ Divide the tax payable by two. ◦ Deduct foreign tax and other taxes paid such as Employees Tax (on companies behalf) ◦ Refer to par 19 and 20 for individuals PAY OVER to SARS if applicable

2 nd payment Estimated tax liability for year ◦ Calculate the tax payable ◦ DEDUCT first payment ◦ Deduct foreign tax Deduct foreign tax and other taxes paid such as Employees Tax (on companies behalf) PAY OVER to SARS if applicable

3 rd payment ACTUAL tax liability ◦ Calculate the tax payable ◦ Deduct first and second payment ◦ Deduct foreign tax and other taxes paid such as Employees Tax (on companies behalf) PAY OVER to SARS if applicable BEFORE EFFECTIVE date

1 st PAYMENT : Can use real estimate or Basic amount However the estimate Must not be < than Basic Amount. A lower estimate may be submitted only with the Commissioner’s approval. 2 ND PAYMENT : Depends on your taxable income: TI R1m or less= Choose Real estimate or Basic Amount TI over R1m= Have to use a real estimate Basic Amount (taxable income is R 1 million or less ) =Taxable income for latest preceding YOA less - Taxable capital gains incl in s 26A - any taxable portion of any lump sum ito s1 G.I – para(d) and (e) incl

‘the latest preceding YOA’ means the latest of the years of assessment - preceding the YOA for which the estimate was made, and - for which a notice of assessment has been issued by the Commissioner not less than 14 days before the date on which the estimate was to be submitted to the Commissioner. ◦ If SARS issued a taxpayer with a return and indicated a taxable income

 2016 YOA – par19(1)(d)(bbA)  From 1 March 2015 any amount (other than a severance benefit) included under par (d) of the gross income definition in s 1 (this includes once-off or irregular awards received from an employer ) will also be excluded from the estimate of the basic amount. This exclusion is aimed at excluding any irregular or once-off payments from the estimate of the basic amount. NB!!!

 2016 YOA – (proviso to par 19(1)(e)(ii))  The 14-day rule will be strictly applied for years of assessment commencing on or after 1 March 2015 with the deletion of this provision. This proviso is deleted to prevent e-filing users from accessing the provisional tax function long before the final date of payment and then using the basic amount generated by the system at that stage to make their provisional tax payment and in doing so trying to avoid the application of the 14-day rule. NB!!!

 2016 YOA – par 19(1)(d)  The basic amount (used to estimate the taxable income for both the first and second provisional tax payments) should be increased by 8% a year if the basic amount must be estimated more than 18 months after the preceding year of assessment (proviso to par 19(1)(d)). NB!!!

X’s year of assessment ends on 28 February each year. X must submit a first period provisional tax estimate for the 2015 year of assessment on 29 August For the 2012 year of assessment, a notice of assessment was issued on 30 June X’s taxable income as assessed in 2012 was R The 2013 and 2014 returns have not yet been submitted. Taxable income as assessed in 2012 included a taxable capital gain of R and a severance benefit of R Adapted from SARS interpretation note 1

Taxable Income 1 st payment More than R1millio n Basic amount Real estimate (not lower than Basic) R1mill or Less Basic amount Real estimate (not lower than Basic)

Taxable Income 2 nd pmt More than R1million Real estimate R1mill or Less- base it on the lower of : Basic amount Real estimate

1 st payment - Penalties: 10% of amount not paid per par 27(1) - Interest- Late Payment If the amount prescribed is not timeously paid in full, interest (at the prescribed rate) is payable on the portion of the amount not paid in full, for the period that the amount remains unpaid s 89bis(2) (now s187,s188 s189 of Tax Admin Act)

2 nd Payment Penalties ito par of amount not paid - Interest- Late Payment If the amount prescribed is not timeously paid in full, interest (at the prescribed rate) is payable on the portion of the amount not paid in full, for the period that the amount remains unpaid (s 89bis(2)). (now s187,s188 s189 of Tax Admin Act)

Year –end estimate inadequate (par 20) Tier 1: Taxable income =/ <R1m If 2 nd pmt is less than The basic amount AND 90% of the actual taxable income for the yoa Then a discretionary penalty of 20% of the difference between the normal tax on the taxable income in his estimate and The lesser of: the normal tax on 90% of the actual taxable income for the year. The normal tax calculated on the basic amount at the rates applicable to that year If both par 20 penalty and a par 27 penalty have been issued in the same provisional tax period, par 20 penalty will be reduced by par 27 penalty. (Effective from yoa commencing 1 March 2015) NB!!!

 The penalty for the late year-end estimate levied under par 20A is repealed effective for years of assessment commencing on or after 1 March Paragraph 20A is deleted to align the provisional tax penalties with the approach of the Tax Administration Act under which a taxpayer may not be subjected to both a non-compliance penalty (as in par 20A and par 27 for late payment) and a penalty for an underestimate (as is levied under par 20). Paragraph 20A has therefore been deleted and par 20 has been amended to allow for the reduction of the par 20 penalty paid with the penalty levied under par 27 for the late payment of provisional tax. NB!!!

 Par 20 penalty example  ABC (Pty) Ltd submitted a second period estimate of R4,5 million on 1 July 2015 and also paid the tax due of R [(R4,5 million × 28%) – (R R70 000)] on this date. The due date for submission of the estimate and payment of the related tax was 30 June  On 8 July 2015 the Commissioner requested ABC (Pty) Ltd to justify the second period estimate. The Commissioner was not satisfied with the estimate and increased the estimate to taxable income of R5 million. On 15 July 2015 SARS issued an additional assessment which required a further payment of R [(R5 million × 28%) – (R R R )] by 29 July ABC made the payment on 29 July  On assessment, ABC’s taxable income was finally determined as R7 million. No employees’ tax was paid during the year.

 A taxpayer who is aggrieved by an assessment may object to the assessment ◦ SARS issues a tax payer with an assessment and the tax payer can either accept the assessment, or object to the outcome of the assessment by lodging an objection.  The objection may be allowed or disallowed or partly allowed  The taxpayer can then lodge an appeal against the decision within 30 working days of the date on the letter notifying of the objection been disallowed  Thereafter, recourse to - ◦ Tax Board / Tax Court ◦ High Court ◦ Supreme Court of Appeal ◦ Constitutional Court for constitutional matters 22

An objection must be:  Lodged within 30 business days after the date of assessment  Lodged in the prescribed form  Specify the grounds of objection in full  Specify an address at which the taxpayer will accept notice and delivery of documents for purposes of the dispute  Signed by the taxpayer or duly authorised representative  Delivered at the SARS address specified for this purpose in the assessment 23

Objection & appeal process does not automatically suspend the obligation to pay Suspension of payment may be granted upon request in specific circumstances SARS collection steps are prohibited during consideration of suspension request and 10 days after revocation notice, except in narrow circumstances 24