[FAQ] What alternative is available if a taxpayer cannot use its 2020 taxable income as the basic amount for its 2021 first provisional tax calculation, which is due 31 August 2020, due to the 2020 Filing Season which only opens on 1 September 2020?
July 20, 2020
Contextualising provisional tax
Cecile Bothe/Beatrie Gouws
The 2020 Filing Season will open on 1 September 2020 for individual taxpayers. As a result, the IRP6 returns for the 2021 first provisional tax payments will automatically calculate the basic amount on the last assessment that SARS has on record. This will be the 2019 year of assessment as taxpayers will not be able to submit their 2020 ITR12 return before the due date for the 2021 first provisional tax payment, which is 31 August 2020. Therefore, a taxpayer will not be able to use its 2020 taxable income as the basic amount for its 2021 first provisional tax payment calculation.
What alternative is available to the taxpayer in the event that the taxpayer reflects a lower taxable income in the 2020 tax year compared to the 2019 tax year?
As a rule, making use of a ‘basic amount’ is a safe haven, and will not result in penalties and interest. The basic amount applies to a provisional taxpayer with an actual taxable income of R1 million or less (i.e. does not apply to a taxpayer with an actual taxable income of more than R1 million.)
If a taxpayer’s income has increased from 2019 to the 2020 tax year:
The taxpayer would generally prefer not to submit their 2020 income tax return, before having to submit their first provisional payment, because they will be able to calculate their first provisional tax payment, based on a higher basic amount.
Relating primarily to instances where the taxpayer had a drop in income:
- The taxpayer would generally prefer to submit their 2020 income tax return, before having to submit their first provisional payment for the 2021 tax year, because they will then be able to calculate their first provisional tax payment, based on a lower basic amount.
- The basic amount is the taxable income, with certain exclusions, of the last year assessed, in respect of which the return was submitted and assessed not less than 14 days before the date of submission of the provisional tax estimate.
- The late opening of the 2020 Filing Season impacts on the basic amount for a provisional taxpayer for the 2021/01 provisional tax period. This is because the 2020 Income Tax return has not been assessed yet.
- The use of the basic amount is a safe option and requires no calculations to estimate taxable income.
- The alternative, which requires extra work and calculations, is to estimate taxable income within 90% of the actual taxable income. In this instance SARS can review the estimate and request the taxpayer to justify it. If SARS is of the opinion that the estimate was too low, the estimate can be increased, resulting in potential late payment penalties and interest.
- Penalties for the underestimation of taxable income are only calculated on assessment and applicable to the second provisional period estimate. Therefore, the risk of underestimation is not relevant in the case of the first provisional payment.
- Where a provisional taxpayer accepts an auto-assessment, processed not less than 14 days before the end of August 2020, the 2020 taxable income can be used as basic amount. Therefore, if SARS issues an auto-assessment in August 2020, and the taxpayer accepts the auto-assessment, 14 days before the end of August, they will be able to use that basic amount. This is particularly relevant for taxpayer that had a drop in income. However, at this point, it is not clear whether SARS will issue auto-assessments for individual provisional taxpayers at the start of August 2020.
Further webinar commentary on provisional tax can be accessed here.
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