# Regulatory Compliance Category > Tax Forum >  What happens when the tax return is negative?

## stephanfx

This has been bugging me. I don't know the answer and I don't have money for an accountant yet.

What happens when my CC tax return is negative? 

I know that when it is in your personal capacity, you receive money back from the Receiver. What happens with a CC, do you get money back, do you deduct it somewhere else? Does it get carried over to the next year?

Please, any help will be very appreciated, as I am very curious...... :Big Grin:

----------


## Dave A

If you've overpaid in provisional payments, then you will get a refund. Get that return in soon. Hopefully you aren't getting _too_ much back - excessive refunds are known to attract an audit.

If you've made a taxable loss in a cc, that loss gets carried over and can be offset against profits in the next tax year. As an aside, a sole proprietor can't carry over losses like that.

----------


## stephanfx

Thanks for the information Dave!

Let's say I don't make any profits for the first 2 years, tax wise, do I still need to make provisional payments? 
When do provisional payments apply? 
What amount is to excessive that it would merit an audit?

----------


## Dave A

Provisional payments are not that complicated really.

Twice a year you will get a provisional return to fill in - one that needs to be submitted by the end of August and a second by the end of February.

This provisional return will already have default figures put in based on historical information. But there is a column where you can put in your own figures based on how your cc has performed to that point. If you haven't made a profit, you can put in a null return. But lets look at the objective:

The goal is to have paid over fairly close to the correct amount of tax for that financial year. There is some margin for error - provisional returns and payments are, after all, estimates and the final figures might well change. What you want to avoid is where those changes in the final figures might be considered unreasonable - and hence worthy of closer investigation by SARS.

As a rough guideline as to these tolerances, either as a flag for audit or for penalties, I have heard the following numbers bandied around when it comes to income tax:
Try to be within 10% either way with provisional payments vs final assessed tax for the year.Try to keep refunds due to you under R15 000.00.
Ultimately, SARS needs to assess whether you are "deserving" of additional attention. Each deviation from "normal" behaviour adds up. And it is considered unusual to pay SARS large sums in excess of what you need to.

----------


## Sieg

I had always understood, that as a provisional taxpayer it was always better to owe SARS something, even if a negligible amount. The reason apparently was that if SARS owed you money and you were a provisional taxpayer, then your tax affairs were subject to an automatic tax audit. (Which is not nice because then they come and scratch through your books and stuff and ask all sorts of uncomfortable questions like "how much money did you spend at the casino?" and "how did you afford that overseas trip on the little income you have declared" and "Who paid for that 4 X 4 parked in your garage?" etc.

Maybe they just don't have the staff to attend to all those tax audits?

Don't worry, they won't come and hassle you today 'cause its Freedom Day!  :Big Grin:  


Sieg

----------


## Dave A

> I had always understood, that as a provisional taxpayer it was always better to owe SARS something, even if a negligible amount.


That's generally the safest - not to mention best for the cashflow.

----------


## duncan drennan

Just a general note about taxes and flags being raised:

My accountant, who worked for SARS and his wife currently works for SARS, mentioned that in general they typically look at two things, percentages, and historical trends. If something sticks out as unusual, then flags start being raised.

So, for example, if you spent R500 on equipment maintenance one year (let's just say it was 1% of your turnover) and the next year you spent R10000 (and it was 20% of your turnover) they are probably going to get suspicious and come asking questions, even if it is totally legitimate Ã¢â¬â you would just need to make sure you have all your ducks in a row and can explain large deviations.

Another thing to keep in mind, apparently (again according to my accountant) it costs something like R400 for them _just to raise a flag_, so if there are small errors it is just not worth the cost to go and investigate them.

--

And just in case Dave's explanation of provisional taxes wasn't enough...here is some more  :Wink: 

As an employee your employer pays over tax due by you each month to SARS (if you are an employer you *must* do this), which is supposed to add up over the year to your total tax due. Tax is levied on your total income for the year, but just paid over in small instalments each month. At the end of the year your total income is assessed and you either pay the difference in, or SARS gives you a rebate.

Provisional tax is just like that, except you only have to make two payments in a year (and if you need to a third payment can be made too), instead of twelve. So instead of paying over tax each month, you pay it over every six months, in August and February.

You actual tax liability is only calculated at the end of the year when you complete your final tax return which shows the actual amount of tax that was due for the year (based on your profit and loss). SARS compares it to what you have provisionally paid over so far and then lets you know if you must pay in, or whether you have overpaid.

As Dave said, it seems wise to have your provisional payments within 10% of your final tax liability.

----------

