Amendments to the income tax act that will affect the 2nd provisional tax estimate

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During the 2023 tax year, SARS issued a Taxation Law Amendment Act of 2021 that has seen a few changes to the Income Tax Act system.

These changes came into effect for the years of assessment ending on or after 31 March 2023. These changes impact the provisional tax estimate calculation.

As the changes came into effect on or after 31 March 2023, it will affect the 2024 income tax calculation and the 2023 income tax calculations for the financial year ending after 31 March 2023.

This is the reason the 2024 2nd provisional tax estimate calculation will have to be calculated with accuracy and also consider the new changes.

We firstly note that the income tax rate for companies changed from 28% to 27%. We will be calculating the provisional tax estimate calculation and the taxable income based on this new rate of 27%.

The new law to the Income Tax Act further states there will be changes regarding the assessed losses that are carried forward.

This change also came into effect on 31 March 2023 and will affect the 2024 income tax calculation and companies with a 2023 financial year ending after 31 March 2023.

Previously SARS allowed companies to carry forward the full assessed loss with no limitations and also utilize the prior year's assessed loss with no limitation.

As long as there was income derived from the trade.

The new rule states companies that have assessed losses carried forward from previous years of assessment will only be able to utilise them against the current year's taxable income, an amount that may not exceed the higher of 1 million or 80% of the current year's taxable income before taking into account the set-off.

The new rule applies only to companies.

Individuals and Trusts are not affected and may fully utilize the assessed losses carried forward from previous years of assessment as normal.

The new rule also does not affect the assessed capital losses generated from capital gains.

If the current year's taxable income calculation results in a loss, then the rule will not apply.

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However, the assessed loss carried forward will increase taking into account the prior year's assessed loss and the current year's taxable loss.

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We also note that for the company to set off an assessed loss, there should be income that has been derived from a trade.

If there is no income declared in the current year's taxable income and the taxable income results in a loss, SARS will disallow the current year's assessed loss.

Have a look at the examples on the right to illustrate the Assessed loss amendments:

We hope the above information is helpful and will add value to your company’s tax affairs.

Should you require further clarity kindly contact our offices on 031 566 5585 or email the tax department managers sphakhathi@accensis.co.za or nzondo@accensis.co.za for assistance.