If the basic amount on a 2nd Provisional tax return is zero and I submit a nil provisional, is there a penalty for understatement if my actual taxable income is less then R1m?

That’s the question that I put to ChatBot, Gemini and Perplexity (my favourite). As always, I asked them for the specific reference sections of the relevant Acts from which they drew their conclusion.

Answers:

Chatbot was so way off track that what it said and the references that it gave are not worth a mention.

Gemini, a well argued resounding Yes, you are liable for understatement penalties.

Perplexity, a well argued resounding No, you are not liable for understatement penalties.

Which one to believe? I have always said “Don’t believe anything that anybody says, including me! Always ask for their source and check that source”. I now have to include AI in this piece of advice.

Gemini and Perplexity both gave the same sources – Income Tax Act 4th Schedule para 20 and Tax Administration Act s221.

I checked both sources carefully and Perplexity was right, except that the Tax Administration Act is irrelevant because it only deals with the amount of any such penalties –

Income Tax Act s20(1)(b) (If the taxable income is) “R1 million or less and the final or last estimate of taxable income submitted by that provisional taxpayer ……………… in respect of that year of assessment is less than 90 per cent of the amount of the provisional taxpayer’s taxable income and is also less than the basic amount ……… the Commissioner must impose a penalty ………….”.