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Difficulties encountered with the basic amount estimate for provisional tax purposes

Friday, 30 January 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: We have a problem with the provisional tax rules in that we call up the returns half-way through January in order to advise clients what they need to pay at the end of February. However, if a return is submitted between then and the 14th of February, the SARS estimate changes according to the last assessment (14-day rule).  We have had situations where the client then receives a penalty for underpayment of provisional tax, when in fact the estimate was correct at the time we printed it and advised the client.

What is our recourse with SARS on this matter, as it is absolutely impossible for us to print the returns and advise the client to pay in just 14 days? Also out of curiosity, what are these days defined as?

A: This matter was raised during the course of the 2014 legislative cycle with SARS and National Treasury who had changed the 60 day period that was previously in this rule with the commencement of the Tax Administration Act (TAA). This was done on the basis that with eFiling, assessments are generated immediately and the taxpayer has immediate access thereto (i.e. no postage involved).

We will again avail these parties to consider a longer period such as 21 days during the 2015 legislative cycle. As a matter of course this matter is only relevant to the basic amount which in itself is not a "safe haven” estimate as commonly used (and a practice frowned upon by SARS) but in effect becomes relevant merely for estimation penalties and knowing when to get approval for a lesser estimate. Where a genuine and proper estimate is done of total taxable income then the estimate should rarely change just because of the change in the preceding year of assessment.

In our view this is 14 calendar days and not "business days” as defined in the TAA. There is no definition of "day” is provided in the Income Tax Act (ITA) or TAA. In such instance it is our view that section 4 of the Interpretation Act applies which is also calendar days, with the proviso that if the last day falls on a Sunday or holiday then that day is excluded. Where something must be paid, submitted or done, this proviso is superseded by  section 244(1)(b) TAA which then requires that the last day of the period must be the last business day before that Sunday or holiday on which the period ends. In our view this does not apply to para 19(1)(e)(ii) Fourth Schedule of the ITA as it is a period not for payment, submission or action, but rather to determine which year is the preceding year of assessment. Accordingly the Interpretation Act provisions would apply in the determination of the 14 days. 

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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