Many tax practitioners have reverted to the easy option of using the basic amount as an estimate for provisional tax. Many tax professionals are also under the incorrect impression that this is within the ambit of the income tax act to use the basic amount as an estimate.
The actual purpose of the basic amount is twofold:
1. It serves as the minimum estimate.
2. It is used as a limit to calculate underestimation penalties if the taxpayer's assessed income it below R1 million.
A brief examination of the income tax law will substantiate statements one and two above:
A question that we often receive from directors is how to compensate yourself if the company is owner managed. In other words a business where the owners are the directors and have discretion in how they are going to structure their own remuneration, or how they are going to extract the profit from the company. Let us explore three possible scenarios.
1. Building up a loan account
We often find that the owners draw money at will and build up a loan account with the company. Some directors are under the impression that this method attracts no tax. They are wrong.
The first factor to consider here is the interest rate that the company is charging the director. In most cases this is 0%. In normal circumstances a company would charge an interest rate to someone it lends money to. Thus in this case the 0% or lower than market related interest rate is directly attributed to the fact that the director is a connected person to the company. In other words the director is receiving a benefit due to his / her employment or connection with the company. This equates to remuneration and as you know remuneration is taxable.
This article will first explain the rational for the new system, then the difference with the previous system and finally on a practical note provide you with steps to obtain your tax compliance status on e-filing.
The new Tax Compliance Status system will be managed online via e-filing.
SARS has decided on the new Tax Compliance system for the following reasons:
Update: Article updated for the 2018, 2019 and 2020 tax year.
The focus in the explanation below is on a person without tax knowledge that would simply like to understand what they are allowed to deduct for their tax.
All the amounts used below are for the 2018 tax year, i.e. 01/03/2017 – 28/02/2018.
Photo title: And another business day is almost over...
This speech of Minister Nene was highly anticipated and perhaps feared by some.
Photo title: Money being cut into many pieces. Source: TaxCredits.net
What is the most tax effective and correct way to get the profit of your business in your personal bank account?
Let’s start with why provisional tax exists. It is simply a way to spread the tax amount due by the person or company over a period of time. This is to ensure that a large amount of tax is not due when the relevant assessment has been completed. Basically it is similar to Pay As You Earn (PAYE), except it is less frequent. Where PAYE is due monthly, provisional tax is due every 6 months. Straight to the point, SARS wants to ensure that they get their money while it is most likely that you still have cash.
To answer the question of who should register for provisional tax, it is any person that derives any income other than a salary. In other words any income on which PAYE is not paid. Thus if you earn a salary and for example earn rental income you should register. From the SARS website:
“Any person who receives income (or to whom income accrues) other than a salary, is a provisional taxpayer. A provisional taxpayer is defined in paragraph 1 of the Fourth Schedule of the Income Tax Act, No.58 of 1962, as any –