In the business and financial world February month is synonymous with provisional tax and the annual budget speech. For the month of February I will focus my content delivery on tax, accounting and budgets.
Let’s kick off with provisional tax.
What is provision tax?
Provisional tax is not a separate tax, but rather paying your income tax liability in advance. It requires that you pay at least two amounts in advance during the year of assessment, the first payment in August and the second payment in February of the relevant tax year.
Who is a provisional tax payer?
If you receive income other than a salary, you may indeed be a provisional tax payer. This income could be from rental income form property, income from consulting or a side hustle, interest income from investments above the annual exemption or other.
Companies are automatically registered as provisional taxpayers. If you are trading as a sole proprietor you would also need to register as a provisional tax payer.
When should it be paid?
Good news! For those of us that have not yet managed to finalise the submission of the 2021 February provisional tax – SARS has taken a decision to extend the Filing Season deadline for provisional taxpayers, which was set for 29 January 2021, to 15 February 2021. So, please hurry up and ensure that you get your provisional taxes submitted.
The first provisional tax payment must be made within six months of the start of the year of assessment. For years of assessment starting March, this will be 31 August. The second payment must be made no later than the last working day of the year of assessment. This will be 28/29 February. The third payment is voluntary and may be made within six months of the year of assessment, in any other case.
How do I calculate provisional tax?
The amount of provisional tax payable is worked out on the estimated taxable income for that particular year of assessment, as follows:
- The First Period – August:
- 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).
- The Second Period – February:
- The total estimated tax for the full year;
- Less the employees tax paid for the full year;
- Less any allowable foreign tax credits for the full year;
- Less the amount paid for the first provisional period.
- The Third Period (voluntary):
- The total tax estimated payable for the full year;
- Less the employees tax paid for the full year;
- Less any allowable foreign tax credits for the full year;
- Less the amount paid for the 1st and 2nd provisional tax periods.
Need more information?
Read more here
If you need some assistance with your tax matters please feel free to reach out to us.
