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News & Press: Opinion

Provisional tax change

26 February 2013   (0 Comments)
Posted by: SAIT Technical
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By Michael Stein (Friday Page)

Since provisional tax payers are about to submit their final estimates for the year ending on 28February 2013, it is opportune to highlight the changes made to the law dealing with the so-called basic amount that may be used in making this estimate.

Paragraph20(1)(b) of the Fourth Schedule to the Income Tax Act provides that if the actual taxable income, as finally determined under the Act, for the year of assessment for which the final estimate of taxable income is submitted for a year of assessment, is not more than R1million, and the estimate is less than 90% of the amount of the actual taxable income for the year and is also less than the basic amount applicable to the estimate, the taxpayer is liable for a penalty equal to 20% of the difference between the lesser of

n the amount of normal tax, calculated at the rates applicable to that year of assessment, on a taxable income equal to 90% of the actual taxable income; and

n the amount of normal tax calculated on a taxable income equal to the basic amount, and

the amount of employees’ tax and provisional tax for the year of assessment that has been paid by the end of the year of assessment.

The determination of the basic amount is dealt with in para19(1).The proviso to para 19(1)(d), as amended by the Schedule to the Tax Administration Act 28 of 2011, which was promulgated on 4July 2012 and for this purpose became effective on 1October 2012, provides for the escalation of the basic amount. It provides that, if an estimate must be made more than eighteen months (previously twelve months) after, and for a period that ends more than one year after, the end of the latest preceding year of assessment in relation to the estimate, the basic amount must be increased by 8% a year, from the end of the relevant preceding year to the end of the current year.

Under para 19(1)(e)(ii), the basic amount in relation to an estimate is the taxable income for the latest preceding year of assessment. Under the previous law, the latest preceding year of assessment was defined as that for which a notice of assessment has been issued no less than sixty days before the date on which the estimate is submitted. This period has been reduced to fourteen days.

A proviso states that when the Commissioner has for an estimate required to be made by a provisional taxpayer issued a return for the payment of provisional tax upon which he has indicated the taxpayer’s taxable income for the latest preceding year of assessment for which a notice of assessment has been issued prior to the issue of the return, the taxpayer may choose to treat that taxable income as the basic amount applicable to the estimate. An amendment provides that the taxable income for the preceding year of assessment reflected on the provisional tax return will be deemed to be the latest preceding year of assessment instead of the taxable income being deemed to be the basic amount applicable to the estimate, thus presumably preventing the Commissioner from claiming that the taxable income reflected on an assessment issued after the year for which a taxable income is reflected on the return is that for the latest preceding year of assessment if the taxpayer chooses to treat the taxable income reflected on the return as that for the latest preceding year of assessment.



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