Guide for Provisional Tax - External Guide – Layman Version

This guide provides information on provisional tax in South Africa, based on the SARS External Guide effective from June 27, 2025. It aims to simplify the complex topic for individuals, including those who may cease to be South African residents or those living in South Africa with specific income types.

 

Understanding Provisional Tax

• • Provisional tax is not a separate type of tax. Instead, it is a mechanism used to pay your normal Income Tax liability in advance throughout the tax year. This helps taxpayers avoid a large tax bill, along with potential penalties and interest, at the end of the assessment year by spreading the tax liability over time.

Who is a Provisional Taxpayer?

• • Generally, you are considered a provisional taxpayer if you are:
    • A person (other than a company) who earns income not considered regular remuneration (like a salary from a registered employer). This includes individuals with business income.
    • A company.
    • A person whom the SARS Commissioner has specifically notified as a provisional taxpayer.
    • A labour broker holding an exemption certificate.

Who is Excluded from Provisional Tax?

• • Certain entities and individuals are specifically excluded from paying provisional tax, including:
    • Public Benefit Organisations (PBOs) and recreational clubs approved by SARS.
    • Body-Corporates, share block companies, or associations of persons under specific sections.
    • Natural persons who do not earn income from carrying on any business, provided their taxable income does not exceed the tax threshold in that year.
    • Natural persons whose taxable income from interest, dividends, foreign dividends, rental income from fixed property, and remuneration from an unregistered employer does not exceed R30,000.
    • Non-resident owners or charterers of ships and aircraft who make payments under Section 33.
    • Small business funding entities and deceased estates.
    • Directors of private companies and members of close corporations are generally considered employees, but they are not automatically provisional taxpayers unless they have other business income.

Special Considerations for South Africans Ceasing RSA Residency

• • If you are a South African natural person who ceases to be a resident of South Africa, specific rules apply to your tax obligations:
    • Your year of assessment ends on the date you cease to be an RSA resident.
    • Two separate assessments are created during that single year of assessment.
    • The date you ceased to be an RSA resident must be manually completed on your IRP6 form (Provisional Tax Return) for the year of assessment where your income, deductions, and tax credits overlap between your period of residence and non-residence.
  • Provisional Tax Calculation for Non-Residents The calculation for non-residents involves similar steps to residents but focuses on the non-resident estimated taxable income and includes specific adjustments for foreign tax credits.
  • Understanding Foreign Tax Rebates (Section 6quat)
  • Foreign tax rebates are crucial for taxpayers, especially those earning income from outside South Africa, as they help prevent double taxation.
    • Section 6quat allows for a rebate against South African tax for foreign tax paid or payable on income from a non-South African source, provided that income is included in your South African taxable income.
    • As of the 2017 year of assessment, Section 6quin, which previously provided a rebate, was deleted. Instead, provisional taxpayers are now granted a deduction from income for services rendered in South Africa but taxed outside South Africa, in terms of Section 6quat (1C).
    • Residents can also claim a foreign credit against capital gains tax paid on the disposal of assets located outside South Africa, if that gain is included in their taxable income, to further prevent double taxation. The credit amount is limited to the extent of taxes paid in South Africa on that taxable capital gain.

Provisional Tax for Individuals and Trusts (South Africans Living in SA)

• • Provisional tax payments are based on your estimated taxable income for the specific year of assessment, which also includes any current taxable capital gains.
  • Key Tax Credits for Natural Persons: When calculating your provisional tax, certain tax credits reduce your normal tax payable:
  • Medical Scheme Fees Tax Credit (Section 6A):
    • This credit replaced the previous medical scheme contribution deduction for taxpayers under 65 from March 1, 2012, and was extended to those 65 and older from March 1, 2014.
    • It applies to fees paid to a registered medical scheme in South Africa or a similar foreign fund.
    • The value of the credit depends on the number of dependents for whom contributions are made:
      • R364 for the person who paid the contribution.
      • R364 for the person’s first dependent.
      • R246 for each additional dependent.

Additional Medical Expenses Tax Credit (Section 6B):

• • • This is a further credit deducted from your normal tax.
    • If you are 65 years or older, or if you, your spouse, or child has a disability, you are eligible for 3% of the total medical scheme contributions that exceed three times the standard medical credit, plus 33.3% of all other qualifying out-of-pocket medical expenses (excluding medical scheme contributions).
    • If you are under 65 years old, you are entitled to 25% of the total medical scheme contributions exceeding four times the standard credit, plus all other qualifying out-of-pocket medical expenses (excluding medical scheme contributions), but only to the extent that this amount exceeds 7.5% of your taxable income (excluding retirement fund lump sums and severance benefits).

Solar Energy Tax Credit (Section 6C):

• • • This credit was introduced to encourage individuals to invest in new and unused solar photovoltaic (PV) panels.
    • To qualify, the panels must have been acquired and brought into use for the first time between March 1, 2023, and before March 1, 2024.
    • The panels must have a generation capacity of not less than 275W.
    • They must be installed on or affixed to your residence, primarily used for domestic purposes, and connected to your distribution board. An electrical certificate of compliance is required upon installation.
    • The rebate amount is 25% of the cost of the PV panels, limited to R15,000. This credit is typically factored into the second provisional tax payment calculation.

Trusts as Provisional Taxpayers:

• • • A trust involves cash or assets administered by a trustee in a fiduciary capacity, appointed via a deed of trust, agreement, or a deceased person’s will.
    • Special Trusts are specifically defined: either created for the sole benefit of a person with a disability (who is incapacitated from earning income or managing affairs), or created by a deceased’s will for the sole benefit of relatives who are alive or conceived at the time of death, where the youngest beneficiary is under 18 years old at the end of the tax year.
    • Trusts (including Special Trusts) do not qualify for interest exemption or personal rebates.
    • Ordinary trusts are taxed at a flat rate of 45%.
    • However, Special Trusts are taxed according to the tax rates applicable to natural persons.
  • Estimating Your Taxable Income (The “Basic Amount”)
  • Provisional taxpayers must submit an estimate of their total taxable income for the year. This estimate is submitted on an IRP6 return.
    • The estimate for provisional tax purposes should not include retirement fund lump sum benefits, retirement fund lump sum withdrawal benefits, or severance benefits.
    • You must include the taxable portion of any aggregate capital gain in both your first and second provisional tax calculations.
    • Your estimate generally cannot be less than the “basic amount”.
  • What is the “Basic Amount”? The “basic amount” is your taxable income from your latest preceding year of assessment, provided that assessment was issued by SARS at least 14 days before you submit your provisional tax return.
    • From this assessed taxable income, you must deduct any taxable capital gain and taxable portions of retirement fund lump sums or severance benefits that were included in that previous assessment.
    • Important Note: The basic amount for all taxpayers must be increased by 8% if the estimate is made more than 18 months after the end of the latest preceding year of assessment. For example, if your 2013 assessment was the latest available and you submitted your 2017 provisional tax return more than 18 months after February 28, 2013, your basic amount from 2013 would be increased by 8% for each year from 2013 to 2017.

SARS’s Powers Regarding Estimates:

• • • SARS may ask you to justify your estimate and provide details of your income and expenses.
    • If SARS is not satisfied, they may increase your estimate to what they deem reasonable, even if it’s more than your basic amount. This increased estimate cannot be objected to or appealed.
  • Provisional Tax Payments and Deadlines
  • Provisional taxpayers are generally required to make two compulsory payments during the year and may make an optional third “top-up” payment.
    • First Period Payment: Due within six months from the start of your year of assessment. For a typical year ending on February 28/29, this payment is due by August 31.
    • Second Period Payment: Due no later than the last day of your year of assessment. For a typical year ending on February 28/29, this payment is due by February 28/29.
    • Third (Voluntary) “Top-Up” Payment: This payment can be made after the end of the year of assessment to prevent or reduce interest on underpayment if your first two payments were insufficient. For a February year-end, this is typically due by September 30 of the following tax year.
  • You must request and submit an IRP6 return for the first and second periods, even if your provisional tax calculation results in a ‘Nil’ (zero) payment.
  • Payment Methods: Payments to SARS can be made via:
    • Your bank (over the counter or internet banking via EFT).
    • SARS eFiling (www.sarsefiling.co.za). When paying electronically, allow for bank cut-off times and clearance periods (2 to 5 days). You will need your 19-digit payment reference number and the beneficiary ID/account number, found on your IRP6 return’s payment advice.
  • What Happens if You Don’t Comply? (Interest and Penalties)
  • Failing to submit or underpaying your provisional tax can lead to interest and penalties:

Interest on Underpayment (Section 89quat interest):

• • • This interest is levied if your normal tax payable exceeds your “credit amount” (an underpayment).
    • The “credit amount” is the sum of all your provisional tax payments (1st, 2nd, and 3rd), Employees’ Tax paid, and allowable Foreign Tax credits for the year.
    • For individuals or trusts, this applies if your taxable income exceeds R50,000. For companies, it applies if taxable income exceeds R20,000.
    • Interest is calculated from the day after the “effective date” until the day before the first due date on your assessment notice.
    • Interest on underpayment is NOT a tax-deductible expense.
    • The prescribed interest rates are subject to change (e.g., 11.25% from March 1 to April 30, 2025, and 11.00% from May 1, 2025).

Penalties (Paragraph 20 penalty for underestimation):

• • • A penalty is levied if your actual taxable income is more than the taxable income estimated on your second provisional tax return. This can apply even if SARS increased your estimate.
    • If you don’t submit your second IRP6 by the due date, you may be deemed to have submitted a ‘nil’ estimate, unless you submit it within four months after the year-end.
    • Certain once-off amounts like retirement lump sums or severance benefits are excluded from the penalty calculation, but voluntary awards are included.
    • The penalty amount varies based on whether your actual taxable income is above or below R1 million.
    • Taxable income up to R1 million: A 20% penalty is levied if your estimate is less than 90% of your actual taxable income AND less than your basic amount.
    • Taxable income above R1 million: A 20% penalty is levied on the difference between the normal tax calculated on 80% of your actual taxable income and the employees’ tax/provisional tax paid.
    • This penalty can be reduced by any penalty imposed for late payment. SARS may remit (reduce or waive) the penalty if satisfied that the failure was not due to an intent to evade or postpone payment.

Paragraph 27 penalty on late payment:

• • • A 10% penalty is levied on any late payment of provisional tax for both the first and second periods.

Deferral of Payment:

• • • While instalment payment agreements (under Section 167 of TAACT) can be made for other tax debts, this type of deferral does NOT apply to provisional tax.
    • The ‘effective date’ for calculation of interest is generally seven months after your year of assessment ends (for February year-ends), or six months after your year of assessment if SARS approved a different financial year-end or in other cases.

Past COVID-19 Tax Relief (2020-2021)

• • It’s important to note that a provisional tax relief measure was introduced during the COVID-19 pandemic for qualifying taxpayers (companies, trusts, and individuals conducting trade).
    • This relief applied to provisional tax payments due from April 1, 2020, to March 31, 2021.
    • For qualifying taxpayers, the first provisional tax payment was based on 15% of the estimated total tax liability, and the second on 65%.
    • The remaining 35% of the provisional tax liability was deferred and payable with the third provisional tax payment.
    • Administrative penalties and interest were not levied on this deferred provisional tax liability for the first and second periods.
    • This relief was applicable to those who were tax compliant and met specific gross income thresholds (e.g., gross income not exceeding R100 million, with limits on passive income).
    • This was a temporary measure. If a taxpayer did not qualify, the relief was withdrawn, and normal penalties and interest applied.