News - Changes to provisional tax legislation:

Changes to provisional tax legislation:

Prior to the amendment, the P2 calculation, which is payable by the last day of a provisional taxpayer's fiscal year (28 February for individuals and trusts and the financial year-end for companies), attracted a 20% penalty in the form of additional tax to the extent that the estimate of taxable income used to calculate the P2 payment was less than both of two parameters. These parameters were:

• Taxable income for the year less a 10% margin of error, i.e. 90% of taxable income.
• A taxpayer's most recent assessed income (the basic amount).

The amendment removes the second parameter (basic amount) which was always a valuable safety net for taxpayers, as accurate estimates of income are usually difficult, right on top of one's year-end. To avoid penalties being imposed taxpayers must ensure that the estimated taxable income they use to calculate their second provisional payment should be within 80% of their final assessed taxable income for the year. The act has however been amended to provide some tax relief. The amendments will be in force from January 2010. In terms of the new proposals smaller taxpayers (those with a taxable income of R1m or less) will again be able to use the basic amount to determine the second payment. Calculation of the second payment must once more be within 90% of the final assessment for the year. In future provision must also be made for an 8% increase on the basic amount.

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