New-style day of reckoning for provisional taxpayers – BJM

THE day of reckoning is at hand for provisional taxpayers – and the process could be tougher this time around as the rules have been changed by the South African Revenue Service (SARS).

This heads-up to provisional taxpayers is being circulated by BJM Private Clients, a wealth manager and adviser that offers a wide range of services to high net worth individuals.

At the end of February, provisional taxpayers make their second provisional tax payment of the tax year, but have to apply new rules rather than depend on the old system whereby they could estimate their exposure based on a previous assessment. If this ‘basic amount’ fell short of their final income for the year, they could top up their tax payment at a later stage.

Under the new rules, provisional taxpayers are split into two tiers; the first for those with taxable income for 2010 of less than R1 million, the second for those who will earn more than R1 million.

New rules state that tier one taxpayers may base their estimate for the second provisional tax payment on the lesser of the last assessment or 90% of their actual taxable income. If their last assessment is not a current assessment, the payment must increase by 8% a year.

Tier two taxpayers must base their estimate for the second provisional tax payment on at least 80% of their actual taxable income for the 2010 tax year.

Tony Barrett, CEO, Wealth, at BJM Private Clients, explains: “In practice, this means these taxpayers have to accurately estimate what their taxable income will be for the 2010 tax year before the completion of the tax year.

“Both tier one and tier two taxpayers need to include capital gains in their calculations.”

The new system may cause confusion and SARS can be severe on offenders when payments are late or provisions are obviously inadequate, says Barrett. This paragraph is okay.

He adds: “Provisional taxpayers may find it in their best interest to seek specialist advice on the new system and how to address the challenge of making accurate forecasts at such an early stage.”