Are you a provisional taxpayer? Are you aware of the upcoming 2021 tax deadline that is due at the end of January 2022?
Provisional Tax is not a separate tax from income tax. It is a method of paying the income tax liability in advance, to ensure that the taxpayer does not have a large tax debt on assessment. Provisional tax allows the tax liability to be spread over the relevant year of assessment. It requires taxpayers to pay at least two amounts in advance, during the year of assessment, which are based on estimated taxable income.
In order for an individual to be categorised as a provisional taxpayer, the individual needs to generate income outside of their regular employment income as listed on their IRP5. Any individual who earns rental income, interest income greater than R 23 500, dividend income, consulting income, or any form of foreign income, will need to be registered as a provisional taxpayer.
Provisional tax ensures that the income generated outside of your relevant employment is not subject to tax throughout the duration of the year. The taxable income generated will be declared on the taxpayer’s respective tax return upon the submission of the annual tax return, and will then be subjected to tax based on the relevant tax tables. The intention of provisional tax is to ensure that the taxpayer does not have a large sum of tax to pay upon the submission of their annual income tax return. Provisional tax allows the taxpayer to spread their payment over two periods, namely August and February.
Individual taxpayers who earn foreign employment income while working outside of South Africa will automatically qualify as a provisional taxpayer. Foreign income earned does not attract tax on a monthly basis like income from employment within South Africa does. Hence, a foreign employment income taxpayer is required to register for provisional tax and make their respective payments.These individual taxpayers are expected to submit their relevant 2021 Income Tax return by 31 January 2022 to ensure that no penalties or interest are charged by SARS. Furthermore, failure to submit before the deadline date will result in non – compliance, which may lead to further stringent action taken by SARS.
Foreign employment income earners have S10(1)(o)(ii) available to them to provide relief in the form of a R 1.25 million exemption. Please read our blog on Expatriate Tax and What You Need To Know which highlights S10(1)(o)(ii) and it’s requirement to apply for the exemption. Please contact us if you believe you fall within the scope of S10(1)(o)(ii) and we will be able to advise whether you indeed do qualify. Furthermore, additional relief can be sought under Section 6 quat for taxpayers earning foreign employment income.
The important dates for Expat taxpayers are the 31st of August (the first provisional tax return is due), the 31st of January (the annual income tax return is due) and the 28th of February (the second provisional tax return is due). As mentioned, an Expat Taxpayer automatically qualifies as a provisional taxpayer and is required to file the above returns to remain compliant. Failure to do so may lead to the imposition of interest and penalties.