I am currently calculating 2017/01 provisional tax returns for December year-end clients. My partner and I are disputing when to apply the 8% increase.
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
Remember that for the first period, a provisional taxpayer (the company) is required to submit a return to the Commissioner which includes an estimate of the total taxable income (estimate) that will be derived by the taxpayer in the relevant year of assessment. We accept that SARS approved the December year end.
The ‘basic amount’ is not an estimate. We accept that the taxpayer can use an amount equal to the basic amount as an estimate. The current practice generally prevailing is that the “use of the basic amount may or may not fulfill this requirement depending on the facts of the particular case.” Where this amount is used, SARS may well request further information.
It is true that the amount of the estimate (the first one) cannot be less than the “basic amount” unless the circumstances of the case justify the submission of an estimate of a lower amount. So, the basic amount would be relevant to determine if the estimate is less than the basic amount.
Relevant to this is the “latest preceding year of assessment”. It means the latest of the years of assessment –
• preceding the year of assessment for which the estimate is made, and
• for which a notice of assessment49 was issued by the Commissioner 14 calendar days or more before the date on which the estimate was submitted to the Commissioner.
The basic amount must be increased by 8% of the basic amount per year if an estimate is made more than 18 months after the end of the latest preceding year of assessment.
The 8% escalation is added for each year from the end of the latest preceding year of assessment to the end of the year of assessment for which the estimate is made.
We don’t agree with your view. The estimate of taxable income to be made on 30 June 2017 will be more than 18 months after the end of the latest preceding year of assessment (December 2015).