In terms of the definition of "provisional taxpayer" in paragraph 1 of the Fourth Schedule, excluded from the definition is a natural person whose taxable income does not exceed the tax threshold OR the taxable income of the natural person which is derive
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The relevant part of the definition, in paragraph 1 of the Fourth Schedule to the Income Tax Act, reads as follows:
For the purposes of the Fourth Schedule, unless the context otherwise indicates “provisional taxpayer” means—
(a) any person (other than a company) who derives income by way of—
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any remuneration from an employer that is not registered in terms of paragraph 15; or
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any amount which does not constitute remuneration or an allowance or advance contemplated in section 8 (1);
but shall exclude—
(dd) any—
(B) natural person who does not derive any income from the carrying on of any business, if—
(AA) the taxable income of that person for the relevant year of assessment does not exceed the tax threshold; or
(BB) the taxable income of that person for the relevant year of assessment which is derived from interest, dividends, foreign dividends, rental from the letting of fixed property and any remuneration from an employer that is not registered in terms of paragraph 15 does not exceed R30 000;
We agree with you that, as far as item (AA) is concerned, the individual will not be a provisional taxpayer if the estimated taxable income in below the tax threshold for the individual in that year of assessment.
The intention of item (AA), initially in paragraph 18, was to make “provision … for natural persons to be exempt from the payment of provisional tax if they do not derive any business income and their taxable income for the tax year will be below the tax threshold.”
With regard to item (BB), the intention was to simplify “the test to qualify for exemption … by determining whether taxable income in the form of interest, dividends and rental from the letting of fixed property will be R10 000 or less during the year of assessment.” The R10 000 has increased to R30 000 since then. It was also stated then that the “de minimis exemption is amended by specifically not allowing the exemption where the individual derives any income from the carrying on of a business.”
The ‘taxable income’ is item (BB), of which only rental is derived from a trade, are all items other than remuneration or an allowance. It is clear, as you also indicated, that a person deriving ‘business income’ will always be a provisional taxpayer even where the income from the business, plus other taxable income, which can the include interest, dividends or rental will be a provisional taxpayer.
The question now is whether an individual, not deriving business income, but “taxable income … which is derived from interest, dividends, foreign dividends, rental from the letting of fixed property …” will be a provisional taxpayer. We accepted that the individual doesn’t derive remuneration from an employer not registered as such with SARS.
There is an ‘or’ between item (AA) and (BB). We submit that it would be reasonable to interpret this to say that a person, who for instance only derives taxable income from “interest, dividends, foreign dividends, rental from the letting of fixed property” only, and where the taxable income thereof is less than the tax threshold, doesn’t have to file a provisional tax return. We say this because the individual would then not have to make any payment to SARS.