Disclaimer. Copyright notice

Transcription

1 Disclaimer The DVD lectures and related study material (consisting of Powerpoint slides, summary modules, integrated question banks and other academic material) are based on the views and/or opinions of the relevant presenter(s) and preparer(s) thereof and do not necessarily constitute official views and/or opinions of CPDtv or any of its alliance partners. Neither the CPDtv (Pty) Ltd, its directors, employees, agents, nor any of its alliance partners, shall be held liable to anyone in respect of any reliance placed on any information so received. Should you require an official opinion or view on a specific matter, please contact the presenter directly and we will gladly assist you further, after having obtained a thorough understanding of the specific scope of the engagement and your specific facts and circumstances. Copyright notice All rights to the work contained on the website of CPDtv (Pty) Ltd are reserved. No part of the work may be reprinted or reproduced, in any form whatsoever, either in whole or in part or by any electronic or any other means including the making of photocopies thereof, without the express prior written consent of CPDtv (Pty) Ltd.

2 Provisional Tax

3 Content of the session Who are provisional taxpayers? Administration Calculation of provisional tax payments: First Second Third The impact of medical deductions for natural person taxpayers Estimates Penalties

4 Classification as Provisional Taxpayer

5 Who are provisional taxpayers? Companies (paragraph 1) ALL companies Excluding Public Benefit Organisations (PBOs) approved by SARS Recreational clubs approved by SARS Body Corporates Share Block Companies

6 Who are provisional taxpayers? Natural persons (paragraph 1) Person who derives income, other than remuneration or an allowance or advance as contemplated in section 8(1) Person who is notified by the Commissioner that he/she is a provisional taxpayer Excluding: A person exempt from provisional tax per paragraph 18 What about directors of private companies and members of CCs??? = employees Therefore, not provisional taxpayers UNLESS they receive income that falls within the scope of provisional tax income

7 Exclusions from the definition Natural person who does not derive any income from the carrying on of any business AND the taxable income of that person for the relevant year of assessment does not exceed the tax threshold; OR the taxable income of that person for the relevant year of assessment which is derived from interest, dividends, foreign dividends and rental from the letting of fixed property does not exceed R30 000

8 Tax thresholds Taxpayer s age 2016 year of assessment 2017 year of assessment Taxpayer < 65 R R Taxpayer between 65 and 75 R R Taxpayer 75 R R

9 Example Taxpayer B is 68 years old. He earned a pension of R8 000 per month and local interest income of R during the course of the 2017 year of assessment. Pension (R8 000 x 12) R Interest income R Interest exemption (R34 500) Taxable income R Natural person who does not derive any income from the carrying on of any business AND the taxable income (R ) does not exceed the tax threshold (R ); OR the taxable income of that person for the relevant year of assessment which is derived from interest, dividends, foreign dividends and rental from the letting of fixed property does not exceed R (R R = R6 000) Therefore, NOT provisional taxpayer

10 Administration

11 When to submit returns Natural persons 28 February 2017 year-end First payment 31 August 2016 Second payment 28 February 2017 Third payment 30 September 2017

12 When to submit returns - Companies First payment 6 months after the start of the year of assessment Second payment At the end of the year of assessment Third payment For 28/29 February year-ends 30 September For all other year of assessments Six months after the end of the year-end 28 February 2017 year-end 31 May 2017 year-end First payment 31 August November 2016 Second payment 28 February May 2017 Third payment 30 September November 2017

13 How to submit a return IRP6 return must be completed for provisional taxpayers What if the total amount of tax due is R0? IRP6 return IS required What if the taxable income is R0? IRP6 return IS NOT required What happens if a taxpayer fails to submit an IRP6 return? The Commissioner may estimate the taxable income and determine the tax payable (paragraph 19(2)

14 Payments Bank payments 19-digit payment reference number and beneficiary ID/account number If last day of payment falls on a Saturday, Sunday or public holiday Payment must be made on the last working day prior to weekend or public holiday Deferral arrangements Negotiated with senior SARS official Termination / modification if: Collection of tax is in jeopardy OR Taxpayer has supplied materially incorrect information in applying for a deferral OR Financial condition of the taxpayer has changed materially Qualifying for a deferral arrangement: Taxpayer suffers from deficiency of assets or liquidity which is reasonably certain to be remedied in the future OR Taxpayer anticipates income or other receipts which can be used to satisfy the tax debt OR Prospects of immediate collection activity are poor or uneconomical but are likely to improve in the future OR Collection activity would be harsh OR The taxpayer provides security What to do if a penalty is levied?

15 Format of calculations: Non-natural persons

16 First provisional tax payment Estimated taxable income for the year of assessment Normal tax on estimated taxable income ½ of total tax payable FIRST PROVISIONAL TAX PAYMENT

17 Second provisional tax payment Estimated taxable income for the year of assessment Normal tax on estimated taxable income Less: First provisional tax payment (only if actually paid) SECOND PROVISIONAL TAX PAYMENT

18 Third provisional tax payment Estimated / Actual taxable income for the year of assessment Normal tax on estimated taxable income Less: First provisional tax payment (only if actually paid) Less: Second provisional tax payment (only if actually paid) THIRD TOP-UP PAYMENT

19 Calculation for companies vs. Calculations for individuals Estimated / Actual taxable income for the year of assessment Normal tax on estimated taxable income Less: Primary, secondary and tertiary rebates Less: Tax credit for medical scheme fees (section 6A) Less: Additional medical expenses tax credit (section 6B) Total Tax Payable Less: Employees tax deducted during the first and second period Less: First provisional tax payment (only if actually paid) Less: Second provisional tax payment (only if actually paid) THIRD TOP-UP PAYMENT

20 Format of calculations: Natural persons

21 First provisional tax payment 31 August Estimated taxable income for the year of assessment Normal tax on estimated taxable income Less: Primary, secondary and tertiary rebates Less: Tax credit for medical scheme fees (section 6A) Less: Additional medical expenses tax credit (section 6B) Total Tax Payable ½ of total tax payable Less: Employees tax deducted during the first period FIRST PROVISIONAL TAX PAYMENT

22 Second provisional tax payment 28/29 February Estimated taxable income for the year of assessment Normal tax on estimated taxable income Less: Primary, secondary and tertiary rebates Less: Tax credit for medical scheme fees (section 6A) Less: Additional medical expenses tax credit (section 6B) Total Tax Payable Less: Employees tax deducted during the first and second period Less: First provisional tax payment (only if actually paid) SECOND PROVISIONAL TAX PAYMENT

23 Third provisional tax payment 30 September Estimated / Actual taxable income for the year of assessment Normal tax on estimated taxable income Less: Primary, secondary and tertiary rebates Less: Tax credit for medical scheme fees (section 6A) Less: Additional medical expenses tax credit (section 6B) Total Tax Payable Less: Employees tax deducted during the first and second period Less: First provisional tax payment (only if actually paid) Less: Second provisional tax payment (only if actually paid) THIRD TOP-UP PAYMENT

24 Medical scheme tax credit (section 6A) Only if member of registered medical scheme Reduces tax liability to Rnil, but cannot be carried forward Tax credit: R286 per month for main member R286 per month for the first dependant R192 per month for each additional dependant

25 Additional medical expenses tax credit (section 6B) < 65 years 65 years Total medical scheme contributions Less: 4 x total Section 6A medical credit Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions) Less: 7.5% of taxable income (excluding retirement fund lump sums and severance benefits) Total medical scheme contributions Less: 3 x total Section 6A medical credit Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions) Subtotal Subtotal Additional medical expenses tax credit = Subtotal x 33 1/3 % Additional medical expenses tax credit = Subtotal x 25%

26 Example: < 65 Taxpayer C is 25 years old and married. He is the main member of a registered medical aid with his wife as his dependant and pays R1 500 total monthly contribution. During the 2017 year of assessment, he also paid R medical expenses himself which were not covered by the medical aid. His taxable income for the 2017 year of assessment amounts to R Total medical scheme contributions R1 500 x 12 = R Less: 4 x total Section 6A medical credit (R286 + R286) x 12 x 4 = R Rnil Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions) Less: 7.5% of taxable income (excluding retirement fund lump sums and severance benefits) Subtotal Additional medical expenses tax credit = Subtotal x 25% R R x 7.5% = R R0 R0

27 Integrated calculation example Taxpayer K is a 30 year old man living in Johannesburg. He is married to Sarah and has two children. He has also incurred R qualifying medical expenses during the first six months of the 2017 year of assessment and R during the second six months. He has also contributed R2 500 per month towards a qualifying medical aid. He estimates his taxable income to amount to amount to R for the 2017 year of assessment. R5 000 employees tax is deducted from his salary each month. Total medical scheme contributions R2 500 x 12 = R Less: 4 x total Section 6A medical credit (R286 + R286 + R192 + R192) x 12 x 4 = R Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions) Less: 7.5% of taxable income (excluding retirement fund lump sums and severance benefits) R Subtotal R5 000 Additional medical expenses tax credit R1 250 R x 7.5% = R30 000

28 First provisional tax payment Estimated taxable income for the year of assessment R Normal tax on estimated taxable income R Less: Primary, secondary and tertiary rebates (R13 500) Less: Tax credit for medical scheme fees (section 6A) (R11 472) Less: Additional medical expenses tax credit (section 6B) (R1 250) Total Tax Payable R ½ of total tax payable R Less: Employees tax deducted during the first period (R30 000) FIRST PROVISIONAL TAX PAYMENT R4 029

29 Additional medical expenses tax credit for the 2 nd provisional tax payment Total medical scheme contributions R2 500 x 12 = R Less: 4 x total Section 6A medical credit (R286 + R286 + R192 + R192) x 12 x 4 = R Add: Out-of-pocket medical expenses paid (excluding medical scheme contributions) Less: 7.5% of taxable income (excluding retirement fund lump sums and severance benefits) Subtotal R Additional medical expenses tax credit R7 500 R R = R R x 7.5% = R30 000

30 Second provisional tax payment Estimated taxable income for the year of assessment R Normal tax on estimated taxable income R Less: Primary, secondary and tertiary rebates (R13 500) Less: Tax credit for medical scheme fees (section 6A) (R11 472) Less: Additional medical expenses tax credit (section 6B) (R7 500) Total Tax Payable R Less: Employees tax deducted during the first and second period (R60 000) Less: First provisional tax payment (only if actually paid) (R4 029) SECOND PROVISIONAL TAX PAYMENT Rnil

31 Estimates

32 How should an estimate be made? Total expected taxable income, excluding: Retirement fund lump sum benefits Retirement fund lump sum withdrawal benefits Severance benefits Estimate cannot be less than basic amount UNLESS the Commissioner agrees Onus is on taxpayer Taxpayer may be asked to justify any estimate made by him/her or to furnish full particulars of income If taxpayer does not respond or response is not satisfactory, the estimate may be increased to an amount which is considered reasonable (paragraph 19(3)) SARS will notify the taxpayer and issue a revised estimate

33 Basic amount Taxpayer s taxable income assessed for the latest preceding year of assessment, excluding Taxable capital gain Amounts per paragraph (d) of the gross income definition Taxable portion of a retirement fund lump sum benefit or retirement fund lump sum withdrawal benefit or severance benefit other than those included under paragraph (ea) of the gross income definition

34 Taxable income of the latest preceding year of assessment What does this mean? Assessment preceding the year of assessment in respect of which the estimate is made Notice of assessment has been issued by SARS > 14 days prior to the due date of the estimate What if not available? Increase of 8% per year IF An estimate is made for a period that ends > 1 year after the end of the latest preceding year of assessment; AND The estimate is made > 18 months after the end of the latest preceding year of assessment

35 Example Taxpayer C needs to submit is 1 st provisional tax return on 31 August His notice of assessment for the 2015 year of assessment was issued on 30 August His notice of assessment for the 2014 year of assessment was issued on 5 December The notice of assessment for the 2015 year of assessment (30 August 2015) was NOT issued 15 days prior to the submission of the provisional tax estimate (31 August 2015). Therefore, the14 day criteria has NOT been met Therefore, the latest preceding year is the 2014 tax year An estimate is made for a period that ends 31 August 2015 which is > 1 year after the end of the latest preceding year of assessment (namely 28 February 2014); AND The estimate is made on 31 August 2015 which is NOT > 18 months after the end of the latest preceding year of assessment Therefore, the basic amount (2014) will not be increased by 8% per year

36 Example Company B neglected to submit tax returns for 2013, 2014 and The taxable income for the 30 June 2012 year of assessment (as assessed, for which a notice of assessment was issued on 3 July 2012) amounted to R , which included a taxable capital gain of R Company B is busy preparing the 1 st provisional tax return for the 2016 year of assessment assessment was issued on 3 July 2012 which is > 14 days than the due date of the 1 st provisional tax return Therefore, the 2012 year of assessment forms the basic amount The 1 st provisional tax return for the 2016 year of assessment (31 December 2015) ends more than 1 year after the end of the latest preceding year of assessment (which ended 30 June 2012); AND The estimate is more than 18 months after the end of the last preceding year (2012) Therefore, the basic amounts needs to be increased by 8% for each year 2012, 2013, 2014 and 2015 Therefore, (R R20 000) + ((R R20 000) x 8% x 4) = R

37 Penalties

38 Understatement of taxable income (paragraph 20) Second provisional tax payment If actual taxable income > Estimated taxable income Understatement penalty (paragraph 20) is reduced by penalty imposed for late payment (paragraph 27) Non-submission of the estimate on taxable income Deemed to be a Rnil submission Penalty amount depends on taxable income

39 Paragraph 20 penalty Taxable income < R1 million Second period estimate must be equal to the lesser of: Basic amount; or 90% of actual taxable income for the year of assessment If estimate < 90% of actual taxable income and estimate < basic amount Penalty = 20% of the lower of Normal tax on 90% of the actual taxable income; or Normal tax on basic amount Less provisional tax and employees tax for the period

40 Example Company X is a provisional taxpayer. The applicable basic amount is R An estimate of R has been used for the 2017 year of assessment, since lower trading revenue was expected due to the current economic climate. The final actual taxable income amounted to R An amount of R provisional tax was paid during the period. Estimate (R ) < 90% of actual taxable income (R x 90% = R ); and Estimate (R ) < basic amount (R ) Therefore, paragraph 20 penalty = 20% lower of: Normal tax on 90% of actual taxable income (R ) R x 28% = R Normal tax on basic amount (R ) R x 28% = R Therefore, R Less: Provisional tax paid during the period of R = R x 20% = R15 160

41 Paragraph 20 penalty Taxable income R1 million Second estimate must be = 80% of actual taxable income 20% x normal tax on 80% of the actual taxable income Less: Provisional tax payments paid during the year of assessment Less: Employees tax deducted during the year of assessment

42 Example Company Y is a provisional taxpayer. The applicable basic amount is R An estimate of R for the 2017 year of assessment, since lower trading revenue was expected due to the current economic climate. The final actual taxable income amounted to R R provisional tax was paid during the period. Second estimate (R ) must be = 80% of actual taxable income (R x 80% = R ) Therefore, penalty 20% x normal tax on 80% of actual taxable income 20% x (R x 28%) = R Less: Provisional tax payments paid during the year of assessment (R ) = 20% x R = R42 720

43 Other penalties Failure to submit an estimate timeously (paragraph 20A) Deleted Late payment 10% on late payment of 1 st and 2 nd payments

44 Interaction between penalties example ABC (Pty) Ltd is a provisional taxpayer. The applicable basic amount is R An estimate of R was used for the 2016 year of assessment, since lower trading revenue was expected due to the current economic climate. The final actual taxable income amounted to R An amount of R was paid as a 1 st provisional tax payment The 2 nd provisional tax payment of R was due on 31 March 2016 but is only paid on 1 December 2016.

45 Solution Underestimation penalty (paragraph 20) Estimate (R ) < 90% of actual taxable income (R x 90% = R ); and Estimate (R ) < basic amount (R ) Therefore, paragraph 20 penalty = 20% lower of: Normal tax on 90% of actual taxable income (R ) R x 28% = R Normal tax on basic amount (R ) R x 28% = R Therefore, R Less: Provisional tax paid during the period of R = R x 20% = R Late payment penalty 10% x R = R3 000 Therefore, the penalty on underestimation (paragraph 20) of R is REDUCED by the late payment penalty (paragraph 27) of R3 000 Therefore, the penalty on underestimation is R R3 000= R12 160