Relief for provisional taxpayers

Relief for provisional taxpayers
David Warneke, BDO tax technical director.

Two changes they should know about with regards to estimates.

The Tax Administration Laws Amendment Bill of 2012 (the TALAB) proposes two welcome changes to the submission of provisional tax estimates by taxpayers. If enacted, the changes will be effective from the date of promulgation of the TALAB.

The first of these changes is that various forms of lump sum benefits will not be included in the estimate of taxable income to be furnished by taxpayers other than companies. The lump sum benefits in question are retirement fund lump sum benefits, retirement fund lump sum withdrawal benefits and severance benefits. The fact that these lump sum benefits have in the past had to be included in estimates of taxable income has led to the potential imposition of underestimation penalties in terms of paragraph 20 of the Fourth Schedule.

The second of the changes is that the paragraph 20 penalty, which has applied in respect of the underestimation of taxable income when submitting the second provisional tax return for the year will in future take into account the amount of provisional and employees’ tax payments made by the taxpayer up to the end of the year of assessment. So, if actual taxable income is in excess of R1 million and the estimate of taxable income submitted was less than 80 per cent of the actual taxable income, the penalty will be on the difference between tax credits (in the form of provisional tax payments and employees’ tax payments for the year) and the tax payable on 80 per cent of the actual taxable income. The penalty will no longer be derived from the amount of the shortfall in the underestimated taxable income. This may be illustrated as follows:

Example:

In furnishing its estimate for the second provisional tax payment, company A estimated a taxable income of R7m. The actual taxable income for the year was R10m. However, its first and second provisional tax 44 payments combined and paid by the end of the year of assessment, were in excess of R2.240m (28% of R8m).

Result:

No paragraph 20 penalty of 20% applies. The penalty will in future be calculated as 20% of the difference between tax payable on 80 per cent of actual taxable income and the sum of provisional tax payments and employees’ tax payments paid by the end of the year of assessment. Since the provisional tax payments paid by the end of the year of assessment are in excess of 28% of R8m, there is no penalty.

The same concession applies to estimates by provisional taxpayers who have taxable income less than or equal to R1m. In this case the penalty will in future only apply if the estimate of taxable income is less than 90% of the actual taxable income for the year and is also less than the basic amount and in addition the tax credits paid by the end of the year of assessment amount to less than the tax due on the lesser of the basic amount and 90% of the actual taxable income.

MONEYWEBTAX – 12 December 2012