A taxpayer is working as a nurse on a cruise liner. Her taxable income for the 2019 year of assessment was R 473,278. Most of this income had been earned overseas. She was not out of the country for more than 183 days and was taxed in South Africa on this foreign income. The R 473,278 is the basic amount appearing on her 202101 provisional tax return (IRP6). The cruise liner industry has imploded due to the current COVID-19 situation and she will be lucky if she earns R100,000 for the 2021 year of assessment.
What are the provisional tax consequences for the taxpayer if she submits a lower taxable income estimate for the 202101 provisional tax period?
Paragraph 19(1)(c) of the Fourth Schedule to the Income Tax is relevant, and it reads as follows:
"The amount of any estimate so submitted by a provisional taxpayer (other than a company) during the period referred to in paragraph 21(1)(a), or by a company (as a provisional taxpayer) during the period referred to in paragraph 23(a), shall not be less than the basic amount applicable to the estimate in question, as contemplated in item (d), unless the circumstances of the case justify the submission of an estimate of a lower amount.
The words “justify the submission” removed “the requirement that the Commissioner must agree to accept an estimate lower than the basic amount i.e. the provisional taxpayer may submit an estimate of a lower amount than the basic amount if justified by the circumstances of the case.”
Your facts, or a reduced estimate of taxable income due to COVID-19, will be circumstances which justifies a lower estimate.
The basic amount is not an estimate and it would be unprofessional to not do an actual estimate for the year, which one would expect to be lower than the last year’s assessed amount.
Paragraph 19(3), of the Schedule, provides that SARS “may call upon any provisional taxpayer to justify any estimate made by the provisional taxpayer …, or to furnish particulars of the provisional taxpayer’s income and expenditure or any other particulars that may be required…”
It then allows, if SARS “is dissatisfied with the said estimate”, that SARS “may increase the amount thereof to such amount as he or she considers reasonable…” Having done the estimate and recorded why it is lower, will enable you to respond to a paragraph 19(3) letter and to ensure that SARS doesn’t increase the estimate.
Further webinar commentary on Provisional Tax calculations and payments can be accessed here.