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Last year you made a profit, this year you’ll make a loss: how do you calculate provisional tax?

30 June 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: We need to submit our provisional tax 30 June. Can we use our projections for this year or must we use last year’s numbers. We made a profit last year but this year we forecast a big loss. We are in a project environment and with the economy slow that the customers have postponed their capital projects and we will make a profit next year again. Can you please advise on how the provisional tax must be calculated?

A: A provisional taxpayer is required to make an "estimate of the total taxable income which will be derived by the taxpayer in respect of the year of assessment in respect of which provisional tax is or may be payable by the taxpayer” – see paragraph 19(1) of the Fourth Schedule to the Income Tax Act.  Using "last year’s numbers” would not necessarily constitute an estimate which "was seriously calculated with due regard to the factors having a bearing thereon” as required by paragraph 20(2).  By using that the taxpayer runs the risk of not being within the "80% of the amount of the actual taxable income” limit as required by paragraph 20(1) and it increases the risk of an underestimation penalty being levied.  

Disclaimer: 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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