What is the difference between annual tax returns and provisional tax returns?

Provisional tax returns

The provisional tax system applies to all taxpayers who receive non-salaried income or realised capital gains during the relevant year of assessment. These are freelancers, sole proprietors, independent contractors, taxpayers who earn rental property income, and employees who work for employers who do not deduct PAYE from their salaries.

Every taxpayer who qualifies as a provisional taxpayer is required to accurately calculate and submit a compulsory provisional tax return reflecting the taxpayer’s total estimated taxable income for the relevant year.

The provisional tax system is not a separate tax from income tax. It is designed to ensure that taxpayers, who received income other than salaries or remuneration, do not end up with a large tax debt on assessment when they submit their annual tax returns. It is a mechanism that allows the tax liability to spread over the relevant year of assessment.  Upon assessment, the provisional tax payments will be off-set against the normal tax liability.

Taxpayers may face penalties and interest if these estimates and payments are not submitted timeously and/or accurately.  Therefore, it is important that taxpayers determine their current and future tax positions by continuously planning and maintaining their tax affairs. 

Provisional tax returns are submitted, and related payments are made twice a year, on 31 August and 28 February. A third payment is optional and is due six months after year end to avoid any interest.

Annual tax return

An annual tax return is submitted by those persons who SARS requires to submit a tax return during the tax season, which generally commences on 1 July of each year. During May of each year, SARS issues a notice in the government gazette confirming the persons required to submit an annual tax return. SARS uses your annual tax return to reconcile what was paid over by your employer (or by yourself as a provisional taxpayer) with what you declare in your annual income tax return. An assessment is issued reflecting whether you need to pay additional tax or whether a refund is due to you or neither.

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