The current draft Tax Administration Laws Amendment Bill, 2018, contains a number of changes to the administrative processes required of SARS and taxpayers. While there are certain proposals that have garnered quite a lot of attention, there are some small, but potentially significant changes tucked into the small print, including changes relating to provisional tax.
“Under current rules, any person (other than a company) who has income other than remuneration, any remuneration from an unregistered employer or receives an allowance must register as a provisional taxpayer,” says Carmen Westermeyer CA(SA), a SAICA Eastern Region Tax committee member.
“There are some exemptions that apply to this, but in principle, any person who receives an allowance or income that is not subject to employees’ tax (PAYE) should register as a provisional taxpayer.”
The proposed change seems quite innocent, as the requirement changes to: any person (other than a company) who has taxable income other than remuneration, any remuneration from an unregistered employer or receives an allowance must register as a provisional taxpayer.
The first key change is that this now means the requirements to register include any capital gains made during the current year of assessment, something excluded from the current definition. The argument that National Treasury submits is that taxes should be paid when earned, and that they have had significant collection issues with respect to these once-off capital gains. The argument is also made that it is a more equitable treatment of all taxpayers who already happen to be provisional taxpayers. This represents a significant deviation from previous attitudes towards capital gains. It also raises a few practical concerns such as:
- Members of unit trusts only really know the true quantum of their capital gains when they receive their tax certificates at the end of the year. If your particular unit trust has had significant churn in a current year, you could inadvertently become liable to have registered as a provisional taxpayer.
- If the sale only happens later in the year, how do you register without incurring administrative penalties for non-submission of the first return?
- There will be a significant education gap with the greater taxpaying public in this regard. How much leeway will taxpayers be given in this respect?
The second consequence of this change is that any taxpayer whose non-remuneration activities become loss-making during a year of assessment is now no longer required to be a provisional taxpayer as they are no longer earning ‛taxable income’. Conversely, if a taxpayer doesn’t register because they are making losses and some expenditure is disallowed, the taxpayer now incurs all the provisional tax penalties as well. It’s also notable that taxpayers will not know if they are going to make profits or losses until close to the end of the year. What happens if they get it wrong?
A last area of concern is that as a consequence of these changes, taxpayers will have frequent changes to their status with respect to provisional tax. There is currently no formal process to deregister as a provisional taxpayer. In fact, there is no formal process to register either ‒ you just tick the box on eFiling.
The lack of deregistration clarity is a real concern for individuals who may need tax clearance certificates in the future. How do you ensure that if you, correctly and legally, are not required to submit a return you still get your clearance certificate? This is particularly relevant where you have had multiple changes in your registration requirements.
For example, a taxpayer who buys a rental property:
|Year||Activity||Taxable income earned||Prov tax registration?|
|1||Purchase of rental property||Yes||Yes, if rental is over R30 000|
|2||Rental operations||No (loss made)||No|
|3||Sale of rental property (capital gain made)||No (loss made)||Yes, as there was a capital gain|
“In this context, taxpayers really need to keep a close eye on their financial affairs ‒ provisional tax penalties are onerous. Don’t get caught unawares!” concludes Westermeyer.
This article was based on a press release issued by the South African Institute of Chartered Accountants (SAICA), South Africa’s pre-eminent accountancy body.