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Provisional tax underestimation penalty in terms of par 20(1)(b)

15 October 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Provisional tax underestimation penalty in terms of par 20(1)(b) of the Fourth Schedule to the Income Tax Act 

Q: SARS imposed a penalty on my client’s 2014 assessment for under provision of tax. The estimate we used was R62 000 and the basic SARS estimate calculated on 2013 assessment was R77000. My client had a capital gain of R300 000 for 2014 but her taxable income excluding the capital gain was only R39 000. Do we have grounds to object based on the fact that she was not due for any provisional payments based on her normal income (excluding capital gains) and that the capital gains figures were only finalised after February 2014?

A: As the taxpayer’s taxable income finally assessed is less than R1 million the penalty was raised in terms of paragraph 20(1)(b) of the Fourth Schedule.  From the information provided the estimate was less than 90% of this amount and also less than the basic amount (you refer to ‘the basic SARS estimate’).  It therefore means that SARS was correct to levy the penalty (they had to).  

The only ground for objection in this instance would be the one in paragraph 20(2).  That requires that the taxpayer must satisfy SARS "that the amount of any estimate … was seriously calculated with due regard to the factors having a bearing thereon and was not deliberately or negligently understated, or if the Commissioner is partly so satisfied, the Commissioner may in his or her discretion remit the penalty or a part thereof.”  

We don’t have enough information to comment on whether or not the taxpayer would be able to meet the onus of proof in this regard.  


Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision. 


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