The importance of knowing your provisional tax status

This article is intended to assist individual taxpayers in understanding their status as a provisional taxpayer.

To fully comprehend who qualifies as a provisional taxpayer, we will look at the definition of a provisional taxpayer. A provisional taxpayer is:

• Any person who derives remuneration from an employer that is not registered for employees’ tax with SARS;
• A person (other than a company) who derives income which does not constitute remuneration, an allowance or an advance received by an employer;
• Any company; and
• Any person who is notified by the SARS commissioner that he/she is a provisional taxpayer.

The following individuals are specifically excluded from the payment of provisional tax:

• Any natural person who does not derive income from the carrying on of any trade, if in that relevant year of assessment:-
  • Taxable income does not exceed the tax threshold, or
  • The taxable income from interest, dividends, foreign dividends and rental from letting of fixed property does not exceed R30 000.

It is important to understand that provisional tax is not a separate tax, but an advance payment of a taxpayer’s normal tax liability. It is merely a mechanism which will prevent large amounts of tax due by a taxpayer on assessment as the tax liability is spread over the relevant year of assessment.

The risk of incorrectly classifying one’s tax status could result in SARS imposing a 20% underestimation of provisional tax penalty plus interest at the prescribed rate.

Disputing an underestimation penalty can be an extensive process which may result in additional costs and it may not result in the desired outcome.

One’s tax status is not fixed and it can change year on year. Therefore it is crucial to keep your tax advisor up to date on the nature of your taxable earnings in order to avoid an underestimation penalty from SARS.

check if you qualify as a provisional taxpayer

1. Is your employer registered for employees’ tax with SARS and your only source of income is from a salary?

• Yes = Non Provisional Taxpayer
• No = Provisional Taxpayer

2. Is your only source of income from a salary?

• Yes = Non Provisional Taxpayer
• No= Proceed to question 3

3. Is the nature of the other income only from interest, foreign dividends and/or rentals from letting fixed property?

• Yes = Proceed to question 4
• No = Provisional Taxpayer

4. Is your taxable income for the particular year of assessment below the tax threshold?

• Yes = Non Provisional Taxpayer
• No = Proceed to question 5

5. Do you earn taxable income from rent, interest and foreign dividends which exceeds R30 000?

• Yes = Provisional Taxpayer
• No = Non Provisional Taxpayer

Should you have any concern about your tax status, please discuss this with your tax advisor in order to correctly assess your status.

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