In this article we will address some of the most common questions we receive regarding provisional tax. In publishing this article, we hope to place valuable information within reach of more people and in doing so indirectly assist more taxpayers with their preparation for this year’s provisional tax submissions.
1. What is Provisional Tax?
Let us start off by clarifying that provisional tax is not a separate tax from income tax. This tax type is to assist taxpayers to pay their income tax liability in instalments rather than as a lump sum at the time of assessment. The two compulsory instalments are offset against the assessed annual tax liability and a third voluntary instalment may be made to avoid understatement penalties.
2. Who has to submit Provisional Tax returns?
The following entities/persons are obligated to submit provisional tax returns:
- Companies (all companies are automatically registered for provisional tax);
- Individual taxpayers who receive a salary from an employer who is not registered for PAYE;
- Individual taxpayers who receive any form of income other than remuneration, with the exclusion of exempt income. This would include taxpayers who are self-employed, who earn rental income, who have a secondary business / side-hustle, or receive annuity income from multiple sources;
- Any person informed by the Commissioner.
3. Who does not have to submit Provisional Tax returns?
The following entities/persons do not have to submit provisional tax returns:
- Approved public benefit organisations or recreational clubs approved by the Commissioner;
- Body corporates, share block companies and certain associations of persons;
- Non-resident owners or charterers of ships or aircraft;
- Any natural person who does not earn any income from carrying on a trade, provided that person’s taxable income will not be more than the tax threshold or the taxable income (earned from local or foreign interest, foreign dividends, the renting of fixed property and remuneration from an unregistered employer) of that person will not exceed R30 000;
- A small business funding entity;
- A deceased estate.
4. When are Provisional Tax submissions due?
Provisional tax returns must be submitted twice per annum. The first provisional tax submission is due by the end of August of each year whilst the second submission is due by the end of February each year. A voluntary third submission is permitted within 6 months from the end of the year of assessment.
5. How do I calculate the Provisional Tax liability?
The amount of provisional tax payable is calculated on the estimated taxable income for the financial year and the process is as follows:
The First Submission (compulsory):
- Calculate the estimated taxable income for the year;
- 50% of the total estimated tax liability for the full year is payable by the end of August;
- Less any employees tax paid for this period of 6 months, if applicable;
- Less any allowable foreign tax credits for this period of 6 months, if applicable.
The Second Submission (compulsory):
- Calculate the estimated taxable income for the year;
- Less the employees tax paid for the full year, if applicable;
- Less any allowable foreign tax credits for the full year, if applicable;
- Less the amount paid for the first provisional period.
The Third Submission (voluntary):
- Calculate the estimated taxable income for the year;
- Less the employees tax paid for the full year, if applicable;
- Less any allowable foreign tax credits for the full year, if applicable;
- Less the amount paid for the 1st and 2nd provisional tax periods.
6. What exemptions, rebates and deductions are available?
Individual taxpayers
The following sources of income are exempt from tax:
- Local interest of less than R23 800 if you are under 65;
- Local interest of less than R34 500 if you are 65 and older;
- Income from a tax-free investment.
Remember to apply the available tax rebates when calculating your tax liability.
| Tax Rebate | 2021 |
| Primary | R14 958 |
| Secondary (65 and older) | R8 199 |
| Tertiary (75 and older) | R2 736 |
Also keep in mind the tax threshold. If your income is not derived from carrying on a trade and is less than the threshold, there is no tax liability.
| Age | 2021 |
| Under 65 | R83 100 |
| 65 an older | R128 650 |
| 75 and older | R143 850 |
The medical aid tax credit as well as retirement annuity contributions and pension/provident fund contributions can also be deducted when determining the tax liability. The medical aid tax credits available are as follows:
| Per month | 2021 |
| For the taxpayer or for a member or dependant of a medical scheme or fund where the taxpayer him- or herself is not a member of a medical scheme or fund | R319 |
| For the taxpayer and one dependant or in respect of two dependants where the taxpayer him- or herself is not a member of a medical scheme or fund | R638 |
| For each additional dependant(s) | R215 |
This article does not cover the details related to the maximum deduction available for retirement annuity contributions and pension/provident fund contributions and we advise to consult with your tax consultant in this regard.
When receiving rental income remember to deduct permitted expenses incurred related to the property and when receiving trade income to deduct the permitted business operating expenses.
Legal entities
The tax liability is calculated on the profit of the business, thus all the income received or accrued during the financial year less all permitted operational expenses.
7. What are the applicable tax rates?
Individual taxpayers
The tax rate applicable will depend on the total annual income of the individual taxpayer as per the current published tax tables and can range from 18% – 45%. The tax rates for individuals for the 2021 tax year are as follows:
| Taxable income (R) | Rates of tax (R) |
| 1 – 205 900 | 18% of taxable income |
| 205 901 – 321 600 | 37 062 + 26% of taxable income above 205 900 |
| 321 601 – 445 100 | 67 144 + 31% of taxable income above 321 600 |
| 445 101 – 584 200 | 105 429 + 36% of taxable income above 445 100 |
| 584 201 – 744 800 | 155 505 + 39% of taxable income above 584 200 |
| 744 801 – 1 577 300 | 218 139 + 41% of taxable income above 744 800 |
| 1 577 301 and above | 559 464 + 45% of taxable income above 1 577 300 |
Legal entities
The normal tax rate applicable for legal entities are as follows:
- Companies and close corporations – 28%,
- Trusts – 45%,
- Personal service providers – 33%.
The 2021 tax rates for entities registered for small business tax are as follows:
| Taxable Income (R) | Rate of Tax (R) |
| 1 – 83 100 | 0% of taxable income |
| 83 101 – 365 000 | 7% of taxable income above 83 100 |
| 365 001 – 550 000 | 19 733 + 21% of taxable income above 365 000 |
| 550 001 and above | 58 583 + 28% of the amount above 550 000 |
The 2021 tax rates for micro businesses registered for turnover tax are as follows:
| Taxable turnover (R) | Rate of tax (R) |
| 1 – 335 000 | 0% of taxable turnover |
| 335 001 – 500 000 | 1% of taxable turnover above 335 000 |
| 500 001 – 750 000 | 1 650 + 2% of taxable turnover above 500 000 |
| 750 001 and above | 6 650 + 3% of taxable turnover above 750 000 |
This article will not deal with small business tax or turnover tax in detail and we advise you consult with your tax consultant in that regard.
8. How do I pay Provisional Tax?
Taxpayers can complete the entire process of filing their provisional tax returns and making payment to SARS via SARS eFiling.
9. What Covid-19 Tax relief measures are available to me/my business?
As part of the Covid-19 tax relief measures, tax compliant businesses are allowed to defer a portion of their provisional tax liability without incurring penalties or interest for a period of 12 months, commencing 1 April 2020 and ending on 31 March 2021. The tax relief measures include the following:
- Compliant taxpayers only have to pay 15% of their total estimated tax liability when submitting the first provisional tax return, due from 1 April 2020 to 30 September 2020.
- Compliant taxpayers only have to pay and 65% (total payment required for provision one and two) of their total estimated tax liability when submitting the second provisional tax return, due from 1 April 2020 to 31 March 2021.
- Compliant taxpayers with deferred payments will be required to pay the remaining 35% of their estimated tax liability when submitting their third provisional tax return in order to avoid understatement penalties and interest on assessment.
Definitions:
A “qualifying taxpayer’’ is a company, trust, partnership or individual that conducts a trade during the year of assessment ending on or after 1 April 2020 but before 1 April 2021, has a gross income of R100 million or less during that year of assessment and is tax compliant. If a provisional taxpayer does not conduct a trade during the year of assessment ending on or after 1 April 2020 but before 1 April 2021, such a person or entity will not be considered a qualifying taxpayer.
“Gross income” does not include more than 20% in aggregate of interest, dividends, foreign dividends, royalties, rental from letting fixed property, annuities and any remuneration received from an employer.
10. Closing
When an entity has an accumulated assessed loss brought forward from a previous year, remember to account for this in the current year when estimating tax liability. The assess loss can be offset against current year profits and future year profits until it has been completely exhausted prior to a tax liability being incurred.
Even if there is no tax liability to declare, remember to always submit a zero return to ensure you remain tax compliant.
If you require any assistance calculating your tax liability, submitting your returns, or if you require more technical information on the matter, please feel free to make contact with us.
Sources:
- Income Tax Act 58 of 1962
