In the past, it was common practice to use the ‘basic amount’ for the submission and payment of the IRP6’s. The ‘basic amount’ is the taxable income for the ‘most recent year of assessment’.
However, in terms of paragraph 19 of the Fourth Schedule to the Income Tax Act, it is compulsory to submit an estimate of the total taxable income for the year of assessment. Therefore, using the basic amount is not necessarily applicable.
We believe that the basic amount can only be used if the taxpayer’s taxable income will be below R1 million and if it is not significantly different from the previous year or not practically feasible to calculate.
Significant differences between the actual taxable income and the basic amount will result in underestimation penalties that will be applied in the following cases:
If the sum of the first and second provisional payments is less than 80% of the normal tax payable on assessment, regardless of the basic amount.
If the sum of the first and second provisional payments is less than 90% of the normal income tax payable on assessment and less than the ‘basic amount’.
There is no underestimation penalty for the first IRP6 as the penalty is charged only on assessment, but SARS may audit a first IRP6. If it is found that insufficient tax has been paid, SARS may issue an additional assessment for which a late payment penalty may be payable.
SARS can remit the underestimation penalty if they are convinced that an actual calculation has been made and it is not intentionally or negligently underestimated.
From recent experience, we propose avoiding a possible underestimation penalty as far as possible by calculating the taxpayer’s taxable income every 6 months. The reason for this is that SARS is applying the prescribed rules much more strictly and do not easily write off this penalty, even in cases where there are sufficient grounds for objection.
We invite you to contact our Tax Department should you have any further inquiries regarding your first or second provisional payments. You can contact us at 021 840 1600 or firstname.lastname@example.org.