Provisional Tax 101: What You Need to Know for the 2024 Tax Year

What is provisional tax?

Provisional tax is not a separate tax from income tax. It is a way of paying your income tax in advance, so that you don't get a nasty surprise when you file your annual tax return.

Provisional tax helps you to spread your tax payments over the year, and avoid interest and penalties for underpaying.

Who should pay provisional tax?

Any person who earns income other than a salary or wages is a provisional taxpayer. This includes income from:

• Running a business
• Renting out property
• Interest and dividends
• Capital gains
• Foreign income

Most people who earn a salary are not provisional taxpayers, unless they have other sources of income. However, if you get paid by an employer who is not registered for employees' tax (such as an embassy), you are also a provisional taxpayer.

Companies are automatically provisional taxpayers, no matter what kind of income they make.

Some entities and individuals don't have to pay provisional tax, such as:

• Approved charities or sports clubs
• Body corporates, share block companies or certain associations of persons that don't pay tax
• Non-resident owners or charterers of ships or aircraft
• Natural persons who don't earn any income from running a business, and whose taxable income is below the tax threshold or only comes from interest, foreign dividends, rental from fixed property and pay from an unregistered employer

When should provisional tax be paid?

Provisional tax payments are due twice a year, and a third payment is optional. The payment dates are:

• The first payment is due by 31 August, or the last business day before that date, of the tax year. This is six months after the start of the tax year.
• The second payment is due by the last business day of February, which is the end of the tax year.
• The third payment is up to you, and can be made by the last business day of September, which is six months after the end of the tax year. This payment is only useful if you want to lower your interest charges for underpaying provisional tax.

How is provisional tax calculated for businesses?

Provisional tax for businesses is based on the estimated taxable income for the tax year. The taxable income is the amount of income that is taxed, after taking off allowable expenses and deductions. The provisional tax payments are calculated as follows:

• The first payment is half of the total estimated tax for the whole year, minus the employees' tax and any foreign tax credits for the first six months, and minus any rebates or medical tax credits that apply.
• The second payment is the total estimated tax for the whole year, minus the employees' tax and any foreign tax credits for the whole year, and minus any rebates or medical tax credits that apply, and minus the amount paid for the first provisional period.
• The third payment is the total estimated tax for the whole year, minus the employees' tax and any foreign tax credits for the whole year, and minus any rebates or medical tax credits that apply, and minus the amount paid for the first and second provisional periods.

How is provisional tax calculated for individuals?

Provisional tax for individuals is also based on the estimated taxable income for the tax year. The taxable income is the amount of income that is taxed, after taking off allowable expenses and deductions. The provisional tax payments are calculated in the same way as for businesses, except that individuals can use the tax tables to work out their tax liability, instead of using the corporate tax rate. The tax tables are available on the SARS website, and they show the tax rates and thresholds for different kinds of taxpayers, such as age, disability and medical scheme membership.

Practical examples for companies, individuals and trusts

To show you how provisional tax works, let's look at some examples for different kinds of taxpayers. We will assume that the tax year is from 1 March 2023 to 28 February 2024.

Example 1: A company with a taxable income of R500,000

A company has a taxable income of R500 000 for the 2024 tax year. The corporate tax rate is 27%, so the total tax liability for the year is R135 000. The company does not have any employees' tax or foreign tax credits, and it does not qualify for any rebates or medical tax credits. The provisional tax payments are calculated as follows:

• The first payment is half of the total tax for the year, which is R67,500.
• The second payment is the total tax for the year, minus the first payment, which is R67,500.
• The third payment is optional, and can be zero or any amount that the company wants to pay to lower its interest charges.
  
  

Example 2: An individual with a taxable income of R300,000

An individual has a taxable income of R300 000 for the 2024 tax year. The individual is under 65 years old, and does not have any dependants or medical scheme membership. The individual does not have any employees' tax or foreign tax credits, and does not qualify for any rebates or medical tax credits.

The provisional tax payments are calculated as follows:

• The first payment is half of the total tax for the year, which is R38 325. This is based on the tax table for individuals under 65, which shows that the tax liability for R300 000 is R76 650.
• The second payment is the total tax for the year, minus the first payment, which is R38 325.
• The third payment is optional, and can be zero or any amount that the individual wants to pay to lower his or her interest charges.

Example 3: A trust with a taxable income of R200,000

A trust has a taxable income of R200,000 for the 2024 tax year. The trust does not have any employees' tax or foreign tax credits, and does not qualify for any rebates or medical tax credits.

The provisional tax payments are calculated as follows:

• The first payment is half of the total tax for the year, which is R45,000. This is based on the tax rate for trusts, which is 45%. (R200,000 x 45% / 2)
• The second payment is the total tax for the year, minus the first payment, which is R45,000. ((R200,000 x 45%) – R45,000 (First payment))
• The third payment is optional, and can be zero or any amount that the trust wants to pay to lower its interest charges.

What happens when you underestimate or pay late?

If you underestimate your taxable income, or pay your provisional tax late, you may face penalties and interest charges from SARS.

The penalties and interest are calculated as follows:

• If your taxable income for the year is more than R1 million, and your estimate is less than 80% of the actual taxable income, you will pay a penalty of 20% of the difference between the tax payable on 80% of the actual taxable income and the tax payable on the estimated taxable income.
• If your taxable income for the year is R1 million or less, and your estimate is less than 90% of the actual taxable income, you will pay a penalty of 20% of the difference between the tax payable on 90% of the actual taxable income and the tax payable on the estimated taxable income.
• If you pay your provisional tax late, you will pay interest on the outstanding amount from the due date until the date of payment. The interest rate is set by SARS and is published on the SARS website.

Conclusion

Provisional tax is a way of paying your income tax in advance, and avoiding a big tax bill at the end of the year. Provisional tax applies to anyone who earns income other than a salary, such as businesses, individuals and trusts. Provisional tax payments are due twice a year, and a third payment is optional.

Provisional tax is calculated based on the estimated taxable income for the tax year, and the relevant tax rates and thresholds. If you underestimate your taxable income, or pay your provisional tax late, you may face penalties and interest charges from SARS.

If you need help with your provisional tax returns, or want to optimise your tax planning, you can contact us for professional advice and assistance. We are a registered accounting firm with years of experience in tax compliance and consulting. We can help you to file your provisional tax returns online, and make sure that you pay the right amount of tax on time.

We can also help you to lower your tax liability and boost your tax benefits, by applying the appropriate tax laws and regulations to your specific situation. Contact us today to find out how we can help you with your provisional tax and other tax matters.

JM Bennett is a Chartered Accountant (SA), a Registered Auditor and a Registered Tax practitioner. He obtained an MBA from Wits Business School in 2020 and a Higher Diploma in Tax from the International Institute of Tax and Finance in 2016. He has almost 20 years of experience in accounting, auditing and tax of SMEs.