During my Certified Financial Planner (CFP©) exams, I hated Provisional Tax calculations. They were complicated and seemed unnecessarily so.
Today I know that I was not the only one! Thousands of tax practitioners are kept in business because of this near-universal dislike of tax calculations. I made it my business (literally and figuratively speaking!) to come to grips with all things tax-related.
The public needs to know that Tax Practitioners must be registered with SARS and only then are we allowed to complete the tax returns for individuals. We can then offer advice to help you to conduct your tax affairs efficiently.
If you are not licensed, you may not complete anyone’s else’s return.
Roughly, individual taxpayers can be divided into two groups.
|Ordinary Taxpayers||Provisional Taxpayers|
|Usually, PAYE is applied to remuneration. |
Complicating factors such as Medical Aid deductions and RA contributions could lessen your tax contribution.
Your tax contributions could be affected by lump-sum payments received.
|Their initial tax payment is an advanced payment of their overall tax liability.
Payment is made twice per annum. A third voluntary payment may be made.
The first provisional payments is made in August. Each payment is based on estimated income.
The second provisional payments are made in February each year. These are subject to a two-tier system.
The tax year starts on the 1st of March and ends on the 28th of February. If you want your Tax Practitioner to help you, you need to do your part! Do not send your submission to him at the end of the last day before the due date. You will not be the only one!
On the subject of planning ahead – remember the due dates for provisional taxpayers fall at socially difficult times – shortly before the end of the year (and the big spends related to the holidays that follow) and early in the new year (when you are recovering from the aforementioned holidays and the beginning of the school year).
It means you need to keep these funds in reserve. Enlisting the services of a Financial Advisor is recommended so that it can be built into your overall financial plan.
These are some of the submission errors individuals often make:
- Errors in calculating Medical Aid deductions (Section 6A & 6B) – This is too complicated for me to explain in the confines of this blog.
- The inability to substantiate deductions – You must keep appropriate records as well as evidence of payments made.
Submission errors for Provisional Taxpayers are far more frequent due to the complexity of the submission. The notes are pages long, and mistakes will result in periodic audits. This means you will be forced to account for your lifestyle and the finances related to that, sometimes going back years. And this will happen every year ad infinitum. It is always best to get a Tax Practitioner involved if you are a Provisional Taxpayer!
Here is a good example of a tax tangle we helped to solve
Meet Mr Joe Soap. He started a small business some years ago. He registered it as a Closed Corporation (CC). He opened a bank account, and off he went to the world of business. Two years passed, and he had not made any submissions to SARS.
He ran into difficulties with the original business and he then abandoned the CC. He then registered a new business as a Limited Proprietary Company (Pty Ltd). He kept using the bank account that was linked to the original CC.
At the time he came knocking on our door he had three companies and yet still used only one bank account – the same one he opened when he started his business ventures. Since no accounting was done, he has no idea of how to move forward. He was trying to save money, so he ignored SARS and tax laws… As he got older, he finally became a little wiser – he realised that he was going to be in enormous trouble if SARS become aware of his failure to disclose his earnings.
As we said, Mr Joe Soap did gain a little bit of wisdom. Sadly, he did not develop enough insight to value honesty. He did not like our advice. We will not help you cut corners or dodge bullets by making false disclosures to SARS. Had he come clean; SARS would have been much more sympathetic than if they caught him out.
The Taxman can be a friend to your business
Starting a first-time business scares many people. As a CFP© I also noticed that new entrepreneurs are often not aware of the variety of tax options open to them, such as:
- Turnover Tax
- Small business tax options
Can you trust the architect of your Family Trust?
On the personal front, Family Trusts may sound like a good option. However, I would strongly advocate that you get a balanced opinion from a financial advisor so that can know what you are letting yourself in for. Do not jump blindly into bed with an attorney who earns a living setting up Trusts and who has no idea how taxes work.
Where to from here?
The complexity of tax issues demands that you elicit proper tax advice from a registered Tax Practitioner.
At NFS we have seen the complexity of tax legislation grow over time. For this reason, we decided to open our own Tax Practitioner division. Should you be one of our existing clients, feel free to contact us for the cost structure of this new service offering. If you are not and feel that you only require the services of a Tax Practitioner, contact us! We are quite likely able to help you. Asking for information is free, after all.
Where in the World is Wally?
The good news is that all our meetings are held on the virtual platforms of your choice. This means you can live anywhere in South Africa, as long as you have internet access or cellular reception.
It also means that once travel restrictions are lifted and you are free to roam the globe, you can contact us from some exotic island in the South Pacific, or surrounded by yaks in Outer Mongolia, or whilst watching antelope on the vast plains of the Serengeti – as long as there is reception, we are never far away.