Busting myths about provisional tax

Busting myths about provisional tax

• 06 July 2022
• Individuals Tax
• Prof Jackie Arendse

Filing season 2022 has begun and again, individual provisional taxpayers have a later tax return submission deadline than other individual taxpayers (the ITR12 submission deadline is 23 January 2023 for provisional taxpayers and 24 October 2022 for other taxpayers). There was some confusion at the close of the 2021 filing season, when numerous taxpayers made use of the later deadline for provisional taxpayers, thinking that they fell within that category, and then faced late submission penalties. On further enquiry, it turned out that many of these taxpayers were mistaken in thinking that they were provisional taxpayers, and they were actually not eligible for the later submission deadline.

The mystery around whether a person is a provisional taxpayer is due largely to a few myths about who is or is not a provisional taxpayer. As we consider the deadlines for submission of the 2022 tax returns, it is opportune to explore the question of ‘who is a provisional taxpayer’? In this article I will attempt to remove some of the mystery and undertake a myth-busting exercise by examining five myths that seem to persist regarding the concept of a ‘provisional taxpayer’. These are:

1. If I have registered as a provisional taxpayer, then I am a provisional taxpayer. Or, stated in the negative: if I haven’t registered as a provisional taxpayer then I’m not a provisional taxpayer.
2. A director of a private company or a member of a close corporation is automatically a provisional taxpayer.
3. Once a provisional taxpayer, always a provisional taxpayer.
4. Anyone earning income other than remuneration is a provisional taxpayer.
5. If I run my own business, then I am a provisional taxpayer.

I will address each myth in turn and as I do so, it is important to note that the question of whether an individual is a provisional taxpayer is always answered by referring to the definition of the term ‘provisional taxpayer’ in paragraph 1 of the Fourth Schedule to the Income Tax Act. Unfortunately, space does not permit a detailed analysis of the definition in this article but I will discuss the definition in detail in the upcoming Tax Faculty webinars on Provisional Tax.

Myth #1:

If I have registered as a provisional taxpayer, then I am a provisional taxpayer. Or, stated in the negative: if I haven’t registered as a provisional taxpayer then I’m not a provisional taxpayer.

It’s time to state this loud and clear: there is no longer a question of ‘registering as a provisional taxpayer’. The requirement to register as a provisional taxpayer was once part of our tax system but was removed many years ago. Now, the question of whether a person is a provisional taxpayer is determined exclusively with reference to the definition of ‘provisional taxpayer’. Even if a person registered as a provisional taxpayer in the past, this doesn’t necessarily have a bearing on whether the person is a provisional taxpayer now. The determination must be done on a year-by-year basis, with reference to the definition as stated above.

Conclusion: Myth #1 is busted!

Myth #2:

A director of a private company or a member of a close corporation is automatically a provisional taxpayer.

The definition of ‘provisional taxpayer’ used to specifically include these categories of persons but this was changed in 2006. Since then, the definition no longer refers specifically to these persons. Currently, a director of a private company or a member of a close corporation will only be a provisional taxpayer if they meet any of the criteria listed in the definition and not because of their status as a director or member.

Conclusion: Myth #2 is busted!

Myth #3:

Once a provisional taxpayer, always a provisional taxpayer.

A person must determine whether they are a provisional taxpayer on a year-by-year basis. It is quite possible that someone may meet the definition in one year and then fall outside the definition in another year, as their financial situation may change. Thus, they may be a provisional taxpayer in one year, and then not a provisional taxpayer in the following year.

Conclusion: Myth #3 is busted!

Myth #4:

Anyone earning income other than remuneration is a provisional taxpayer.

Again, the test is whether the person falls within the definition of ‘provisional taxpayer’. One of the criteria in the definition is, indeed, whether a person earns income other than remuneration, but then there are some exclusions to the definition. If one of the exclusions applies, then the person will not be a provisional taxpayer for that year.

Conclusion: Myth #4 is busted!

Myth #5:

If I run my own business, then I am a provisional taxpayer.

Whether the individual running the business is a provisional taxpayer, depends on the legal form of the business. If the individual owns the shares in a company, through which the business is carried on, this will not automatically make the individual a provisional taxpayer. On the other hand, if the business is run as a sole trader or in partnership with others, then the individual will be a provisional taxpayer. Again, the determination is done with reference to the definition of ‘provisional taxpayer’.

Conclusion: Myth #5 is busted!

So, all five myths are busted!

Join me for the two-part webinar series on provisional tax in which I will clarify exactly who is a provisional taxpayer, and explain the compliance requirements of a provisional taxpayer, to ensure that penalties, interest and disputes with SARS are avoided. Webinar 1 (Current Issues in Provisional Tax) will take place on 19 July 2022 and Webinar 2 (Analysis of the Provisional Tax Legislation) will take place on 15 August 2022, book your spot here.

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