The taxation note for a South African company
How the taxation note in a South African company's statements reconciles the tax charge to profit at the statutory rate, and the usual reconciling items.
By Achekam · · 4 min read · For Accountants & audit firms in South Africa
The taxation note is where a set of statements explains why the tax charge is not simply profit before tax multiplied by the company rate. For most small South African companies the explanation is a short list of familiar items: a fine that is not deductible, a donation without a section 18A receipt, dividends received that are exempt, an assessed loss used up. Yet the reconciliation is one of the notes most often left as a single unexplained line.
This article covers the parts of the tax charge, the rate that applies to the client's year, the usual reconciling items, how Achekam's tax pack fits in and where filing sits.
Current tax, deferred tax and the total charge
The income tax expense in the statements has two parts:
- Current tax: the tax payable on the taxable income for the year, plus any adjustment for earlier years.
- Deferred tax: the movement in the deferred tax balance, arising from temporary differences between the carrying amounts of assets and liabilities and their tax bases, and from unused assessed losses where recovery is probable.
The note usually shows each part and the total charge, and then reconciles the charge to the accounting profit multiplied by the applicable rate. Both IAS 12 and IFRS for SMEs require the relationship between the tax expense and accounting profit to be explained, and a numerical reconciliation is the clearest way to do it.
Which rate applies to the client's year of assessment
South Africa taxes companies at 27% for years of assessment ending on or after 31 March 2023, and at 28% before that. A company's year of assessment follows its own financial year, so the test is the date the client's financial year ends. The tax year that runs from 1 March to the last day of February, named for the year in which it ends, is the one that governs individuals and payroll; keep the two apart.
SARS publishes current company rates, and the progressive table for small business corporations by year of assessment, on its companies, trusts and small business corporations rates page. If the client qualifies as a small business corporation, the flat company rate is not the rate that applies, so either start the reconciliation from the rate that does, or show the effect of the lower bands as a reconciling item. Rates and thresholds change, so check them at the time the note is prepared.
The rate change also reached deferred tax. Balances measured at 28% had to be remeasured at 27%, which produced a reconciling item in the year the new rate was first used to measure them. For most clients that is history now, but it can still appear in comparatives.
Reconciling items: non-deductible costs, exempt income, assessed losses
The usual items in a small South African company's reconciliation:
| Item | Effect on the charge compared with profit at the statutory rate |
|---|---|
| Fines and penalties | Increase: not deductible |
| Donations without a section 18A receipt | Increase: not deductible |
| Expenses of a capital nature, such as some legal fees | Increase, unless an allowance applies |
| Dividends received from South African companies | Decrease: generally exempt |
| Capital gains | Partial: only the included portion of a gain is taxed |
| Assessed loss used, where no deferred tax asset was recognised | Decrease |
| Assessed loss arising and not recognised as a deferred tax asset | Increase |
| Under- or over-provision for a prior year | Either way |
The test of a good reconciliation is that every line can be traced to the tax computation and the last line equals the total tax charge in the income statement.
The tax pack and what its card says is missing
In Achekam, the Studio builds draft statements from the mapped trial balance, with standard accounting policy wording based on IFRS for SMEs labelled for review before issue, and notes that take their figures from the trial balance. Facts the trial balance does not hold are left as "[to be completed]", and most of the reconciling items fall into that category because they come from the tax computation rather than the ledger.
Staff can download the statements as an A4 PDF, and issuing stores the final PDF with a fingerprint and locks that version. The board and tax packs are the statutory set under another name, and their cards list what is not yet included. Read the tax pack's card before it goes anywhere: it tells you what is still missing, and an unfinished taxation note is a common entry.
Filing stays with the firm on SARS eFiling
Achekam does not submit tax returns or payroll declarations to SARS. The firm files them itself on eFiling and records the filing in Achekam. The statements and the tax pack support the ITR14; they do not replace it, and the return remains the firm's work.
Before the note is finalised:
- Agree current tax to the tax computation and the provisional tax paid.
- Confirm the rate against the client's year end.
- Build the reconciliation from the computation, item by item.
- Agree deferred tax to a schedule of temporary differences and assessed losses.
- Check that the policy wording describes current and deferred tax as the client applies them.
How the firm exports and tracks client tax work is covered in client tax work: export and track, and policies and notes more generally in accounting policies and notes. A reconciliation that ties to the computation line by line is also the best preparation for any question SARS later asks about the return.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
