Is Your Trust Registered and Ready for Income Tax?

“A trust is a ‘person’ for tax purposes and is therefore a taxpayer in its own right.”

SARS

SARS recently sent out a reminder confirming that in terms of the Income Tax Act, 1962 (ITA), all trusts are taxpayers and that the trustees, who are also the representative taxpayers of the trust, have a responsibility to register the trusts – whether active or dormant – for income tax purposes. 

The representative taxpayer (trustee/s), or the appointed tax practitioner, must also file an income tax return for the trust on an annual basis, and before the tax season deadlines to avoid penalties and interest.

Trusts that are required to register include all local trusts, non-resident trusts that are effectively managed in South Africa, as well as non-resident trusts that derive income from a South African source. 

Why business owners use trusts 

Trusts are used to hold, protect and ensure the continuity of ownership of personal or business assets, shares in businesses, and the right of use of assets. 

The benefits include protection of assets against creditors, for example in the case of liquidation or sequestration, and against other parties – for example an ex-spouse, or ill-intentioned family member. 

Where appropriate, a trust can be a useful tool to help ensure effective future planning; achieve continuity through efficient succession; and even managing certain tax liabilities, such as estate duty. 

A business can also be registered in a business trust, also called a “trading trust,” instead of registering as a company with the CIPC. This option, however, is only appropriate where the main aim is conducting business, and a contractual agreement will task the trustees to manage the assets of the trust for a profit.

While a business trust can be useful to protect assets and safeguard the business owner against certain liabilities, it also has several drawbacks and may not always be the right alternative to registering a company. 

Whether a business or personal trust, professional advice and guidance is crucial, because not only are the rules governing trusts complex, but the taxation of trusts requires specialised expertise. 

The taxation of trusts 

Whereas companies in South Africa are taxed at a flat rate of 27% for years of assessment ending after 31 March 2023, the income tax rate for trusts is currently 45%, and it is levied on any income retained in the trust. 

This is the highest income tax rate, and trusts also do not qualify for any of the rebates provided for in Section 6 of the Income Tax Act.

Trustees may allocate income and capital to multiple beneficiaries, so that the tax obligation is spread, possibly at a lower rate in some instances. This is because, depending on circumstances, income distributed may be taxable in the hands of the founder, the beneficiaries or the trustees. 

There are also special trusts, taxed at a sliding scale of 18% – 45% (the same as natural persons), and some special trusts also qualify for certain relief from Capital Gains Tax. 

How to submit a tax return for your trust

It sounds quite simple in theory: an ITR12T must be completed and submitted. 

In reality, a ITR12T trust tax return is a 31-page document, and completing it correctly is no quick or easy task. 

Firstly, a trust must be registered with SARS for the taxes for which it may be liable. In addition, the trustees of the trust – who are also the representative taxpayers of the trust – must file the return within the tax season deadline. This responsibility may be conferred to a specific trustee, or to a professional appointed by the trustee(s).  

To make it easier to comply, SARS has announced some enhancements to its system. For example, whereas one could previously only register a trust via a visit to a SARS branch, taxpayers can now register a trust for tax purposes through the SARS Online Query System and also submit any supporting documents online.

Furthermore, the ITR12T trust return form is now available on eFiling. The representative of a registered trust can request the return on eFiling and customise it by completing the questions on the Tax Wizard. Requesting the ITR12T to be posted, as was previously required, is no longer an option and trust returns received via post will be rejected. 

Taxpayers registered for eFiling are also able to complete and submit the return online. Only trusts with ten or fewer beneficiaries have the option to have the ITR12T return captured by a SARS agent at a branch, and only if an appointment has been made.

When the filing period for trusts ends, SARS will raise original estimated assessments on ITR12Ts that were not officially filed by the taxpayer.

After the estimated assessment has been raised by SARS, the taxpayer will be allowed to request an original (new) return to be submitted to SARS. The same estimated return will be issued on eFiling to be completed, with a new version number of the return. 

The taxpayer will be able to request a correction after the original return has been submitted, until one or two rejection letters have been received from SARS. Thereafter, the taxpayer will have the option to dispute the decision taken by SARS.

Bear in mind…

  • SARS introduced a number of form and system changes in respect of trusts from 24 June 2022.
  • SARS has advised trusts that all outstanding income tax returns are submitted without delay to avoid further penalties and interest.
  • SARS reminds trusts not registered for income tax purposes of the availability of the Voluntary Disclosure Programme (VDP), an option that should only be considered after obtaining professional advice. 
  • If the ITR12T return is not submitted by the relevant deadline, the trust will be liable for an administrative penalty due to non-compliance.
  • Provisional taxpayers are required to make provisional tax payments within six months after the commencement of a year of assessment and then again by the end of the year of assessment.
  • The trust is required to keep all the relevant material and supporting documents for a period of five (5) years from the date of submission of the return. SARS may, within the 5-year period, request these documents to verify the information that was declared on the ITR12T.
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Owe SARS a Tax Debt? Here Are Your Options…

“Tax debtors are expected to take responsibility for their tax obligations and to organise their affairs in such a way as to be able to discharge those responsibilities when required. They should give at least the same priority to tax obligations as their other responsibilities.”

SARS’ Short Guide to the Tax Administration Act

To avoid tax debt, penalties and interest, it is best to file returns and make payments timeously. However, for a range of reasons, taxpayers may not be able to meet these requirements on time, finding themselves facing a tax debt owed to SARS. 

There are different ways in which tax debt can arise, and while the taxpayers’ agreement and ability to settle this debt will determine the details of each taxpayer’s response, all tax debts should be handled the same way: promptly and with professional assistance.

If you or your company have any tax debt, take action without delay! In certain circumstances and with the right professional assistance, an agreement may be reached with SARS to defer the tax debt for later payment or for payment by instalments.

How do tax debts arise? 

Tax debts can arise from administrative penalties on late or non-submission of tax returns, failure to submit tax returns, the submission of returns without payment, partial payment of a tax liability or from a SARS audit assessment.

How would you know about a tax debt? 

Individuals and businesses should – proactively and on a regular basis – check their compliance status with SARS or obtain a statement of account on the various taxes payable, either from their accountant or via the SARS’ Contact Centre, eFiling and the SARS MobiApp, to confirm if SARS is owed any amounts. 

SARS is also required to inform taxpayers of assessments, notifications or communications issued, by also sending a message to a taxpayer’s last known number or email address. This makes it crucial to keep your contact details updated at SARS and to check your compliance status or statement of account whenever an email or SMS is received from SARS. 

No dispute, but can’t pay now? 

In many cases, a taxpayer may not dispute the existence or amount of a tax debt but is unable to meet the payment required by the stipulated date. 

In this case, there are two options that could be considered based on the unique facts of each case. 

  1. The first is a payment arrangement 

SARS provides for a deferment, or instalment payment arrangement, for the outstanding tax debt. Taxpayers can request and enter into an instalment payment arrangement with SARS that allows the outstanding debt, including applicable interest, to be paid in one sum or in instalments over time (up to 36 months). This agreement is subject to certain qualifying criteria, for example, the payment arrangement must cover the entire debt and all non-compliance must first be remedied, which means all returns and/or recons must be correctly submitted.

Until recently, taxpayers could only make payment arrangements via a debt collector who had been appointed by SARS, in person at a SARS branch, utilising the debt management regional email addresses, or on the My Compliance Profile (MCP) on eFiling.

SARS recently implemented the Enhanced Debt Management process to help taxpayers with outstanding debt initiate a request for Payment Arrangement for Personal Income Tax (PIT); Corporate Income Tax (CIT); Value-Added Tax (VAT); Pay-As-You-Earn (PAYE) and administrative penalties via eFiling. 

If granted, the repayments are loaded via eFiling to be released from the taxpayer’s bank account. Interest will continue to accrue on any unpaid debt, and any breach of the conditions will terminate the payment agreement and normal collection proceedings will resume.

  1. The second is a compromise agreement

Applying for a compromise agreement is an option of last resort when a taxpayer cannot afford to settle the tax debt owing to SARS. A SARS Debt Compromise is a process whereby a taxpayer requests that SARS permanently or temporarily “write-off” a large portion of their debt, with the balance being paid in full by the taxpayer immediately on the condition that the taxpayer complies with any conditions imposed by SARS.

It is important to note that a temporary write off is generally merely a suspension of the recovery of a debt, and the debt may still be recoverable during the prescription period which, under the Act, is 15 years. 

In deciding to grant a compromise, a senior SARS official must have regard to several factors. However, no compromise will be granted in several instances, for example, if the taxpayer’s other tax affairs are not in order or where a taxpayer recently had a previous compromise agreement with SARS. 

A compromise also cannot be considered if the taxpayer disputes the debt. If a matter is under objection or appeal, the taxpayer must withdraw the objection or appeal before a compromise can be considered. 

If you are looking for a compromise with SARS, professional assistance is crucial. 

Disputing a tax debt? 

Often, taxpayers disagree with assessments issued by SARS. While taxpayers do have the right to dispute an assessment by lodging an objection, it is vital to note that an objection or appeal lodged with SARS does not in any way suspend or postpone the payment of the tax debt. 

Aptly named the “pay-now-argue-later” principle, it applies to all tax debt. 

To prevent SARS from instituting collection proceedings on a tax debt that is to be disputed, two steps are required: 

  1. Lodge an objection in dispute of the assessment AND
  1. Submit a “Request for Suspension of Payment.”

The taxpayer is protected from all SARS collection procedures between the dates that SARS receives the request, to 10 business days after SARS issues its decision to grant or decline the Suspension of Payment request.

A Suspension of Payment request can only be granted by a senior SARS official, after taking into consideration several factors, including the compliance history of the taxpayer and whether the dispute is a result of fraud.

If a Suspension of Payment request is granted, SARS may not commence any collection proceedings for the tax debt in dispute pending the outcome of the objection or appeal. However, interest will accrue on the unpaid debt.

If SARS denies the Suspension of Payment request, the taxpayer also has the option to apply to SARS for a payment plan. A Suspension of Payment is also revoked if the dispute process is not followed. 

On the finalisation of the objection or appeal, a revised assessment will reflect the resulting tax debt and the due date for payment. Again, if the revised tax debt is not paid on time, SARS may commence collection proceedings.

Why you must act promptly and professionally

It is a criminal offense to not submit a tax return when it is due, and it can be a criminal offense not to pay.

If you cannot pay a tax debt to SARS and do not follow the correct procedures, SARS is legally allowed to exercise its wide powers of collection. However, SARS states that when deciding the most appropriate way to deal with outstanding tax obligations, it will give considerable weight to the tax debtors’ individual circumstances and compliance history of, for example, lodging correct returns and documents and paying taxes on time.

SARS’ debt collection powers extend to issuing a judgment and having a taxpayer blacklisted; obtaining a preservation order in respect of taxpayer assets; attaching and selling taxpayer assets; and bringing sequestration or liquidation proceedings against a taxpayer, even if the debt is disputed. In fact, even the money in your savings account or your income may be in jeopardy.

This is because SARS can access data in relation to every bank account registered in your name using your ID number and can also recover tax debt through third parties who hold money on your behalf, such as a bank, an employer, an insurance company or an attorney. 

Due to recent changes to the tax laws, there have been increasing reports of SARS collecting ‘outstanding tax debts’ from taxpayers’ bank accounts, without the taxpayers’ consent. While SARS can indeed do this without any judicial oversight, it is important to know that SARS is required by law to follow specific steps prescribed by the Tax Administration Act (TAA) before doing so. 

These include that the taxpayer must have received an assessment from SARS detailing how much is due and by when, as well as a final demand for payment that states available debt relief mechanisms contained in the TAA; and recovery steps that SARS may take if the tax debt is not paid. Taxpayers who can prove serious financial hardship may apply to SARS for a reduction of the amount within 5 business days of receiving the final demand or extend the period over which the amount must be paid.

Only 10 business days after delivery of the final demand, if no response has been received from the taxpayer, can a senior SARS official authorise a third party to collect the tax debt. However, if SARS does not follow the steps detailed in the TAA, collection proceedings may be regarded as illegal and in contravention of the TAA, and the taxpayer will have recourse against SARS via its Complaint Management Office (CMO), the Tax Ombud or legal action. Again, in these instances, professional assistance is strongly recommended.

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Tax Season 2022 Now Open: Beware, This Year’s Deadlines are Shorter!

“Few of us ever test our powers of deduction, except when filling out an income tax form.”

Laurence J. Peter

In this article, we look at the who, how and when of this 2022 Tax Season; highlight some issues that require special attention; and suggest practical next steps to help you avoid the last-minute rush, the risk of errors and omissions, and the cost of late submissions, penalties and audits. 

At a glance 

Tax Season 2022 opens 1 July 2022 – here is a quick overview of who must submit, how they must do so and when by:

Who is exempt from filing? 

  • Individuals receiving total annual gross income of less than R500,000 from only one source with no other allowances or benefits, and from whom PAYE has been deducted as per the prescribed tax deduction tables.
  • Individuals who are not claiming tax related deductions or rebates such as medical expenses, travel and retirement annuity contributions other than pension contributions made by their employer.
  • Individuals who only receive interest below the interest exemption thresholds; amounts from tax-free savings accounts; or dividends. 
  • Individuals who are non-residents throughout the year.

Even if you could be exempt at first glance you might still benefit from filing a return due to your particular circumstances. If there is any doubt, professional advice is essential. 

Issues requiring special attention 

This year’s tax season is substantially shorter than last year’s for provisional, non-provisional, manual and branch office submissions! 

Last year, non-provisional taxpayers had until 23 November, extended to 2 December at the last minute. This year’s deadline is a month earlier, on 24 October 2022. 

Similarly, the 23 January 2023 deadline for provisional taxpayers is a week earlier. That’s less than seven months away, including the December and January holiday periods. 

  • Home office expenses remain in the spotlight, as SARS disallowed over 60% of home office claims last year. Make sure you qualify for this deduction, and that it is correctly pro-rata calculated for allowable non-capital expenses such as rates and taxes, electricity, repairs and insurance. Deductions can’t be claimed for reimbursements or equipment provided by an employer without charge. Also be sure to understand the potential capital gains tax impact when you sell your home for which the deduction was claimed. Professional advice is essential here!
  • Last year more than three million taxpayers were auto-assessed, and significantly more individual taxpayers will be auto-assessed this year. If you are auto-assessed, SARS will send you an SMS that your tax return has been pre-populated by SARS on eFiling or the SARS MobiApp. Check with your accountant before making any decisions about your auto-assessment.
  • Be sure to check if your auto-assessment is correct as soon as you receive the SMS notification, because this year there is no need to “accept” the assessment: SARS will regard it as accepted unless changes are made as detailed below before the 24 October deadline. If an amount is due to SARS, the next step is simply to make the payment via eFiling or SARS MobiApp. If a refund is due to you, check that your banking details with SARS are correct and simply wait for the refund. 

If you don’t agree with the automated assessment, an accurate ITR12 tax return can be filed within 40 business days of the date of the auto assessment. If this return is filed after 24 October, it will be subject to normal late submission admin penalties and interest. If SARS accepts the changes, a reduced or additional assessment will be issued. If not, the normal objection and appeal options are available.

  • SARS has stated that Company Income Tax (CIT) filing compliance is currently a focus and urges companies to note that it is compulsory for registered companies that are required to file a return to do so on time and complete in all respects.
  • Non-compliance is as expensive as ever, with the same penalty rules for auto-assessments expected to apply for the 2022 filing season. The late submission admin penalty ranges from R250 to R16,000 a month for up to 35 months, depending on the assessed loss or taxable income of the taxpayer for the year prior to the year being assessed.

In addition, failure to submit the return(s) within the prescribed period could result in a summons and/or criminal prosecution, which upon conviction is subject to a fine or to imprisonment for a period of up to two years. 

Next steps 

  1. Get started immediately to avoid the last-minute rush, and to minimise the risk of errors and omissions. Diarise the key dates, allowing time to attend to any potential problems, such as finding documents, obtaining third party information or getting professional advice. 
  1. Ensure all your information is correct. Update your personal information such as banking details, address and contact details on eFiling or the SARS MobiApp, and make sure all information provided on the return is true. SARS has significantly improved its abilities to draw information from third parties, including employers, financial institutions, medical schemes, retirement annuity fund administrators and other third-party data providers, making it easier than ever before for SARS to detect incorrect or undisclosed information. 
  2. Check that you have received certificates and documents relevant in determining your tax obligations such as your IRP5/IT3(a)s and other tax certificates like medical certificates, retirement annuity fund certificate and other 3rd party data. If not, immediately contact the 3rd party data provider.
  3. Keep accurate records of all the calculations and source documents used as SARS may ask for these documents to be verified and/or for the calculations to be justified. 
  1. Consider professional assistance to ensure all exemptions, rebates and deductions for businesses and individuals are included and that the many terms and conditions, dictating when and how these may be claimed, have been met. Last year, SARS refunded more than R17 billion to taxpayers.
  1. Plan ahead financially to meet the tax liability that will be due along with the submission deadline. 
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The Simple Solution to Hassle-Free EMP501 Final Recons

“The employer in collaborating with SARS plays a critical coalition towards adherence and compliance of tax principles and laws.”

SARS External Guide – A Guide to The Employer Reconciliation Process

By law, employers must deduct or withhold employees’ tax from remuneration and pay this to SARS monthly on or before the 7th of the following month with the EMP201 declarations; and must also reconcile employees’ tax during the interim reconciliation (due end October) and the annual reconciliation (due end May) when tax certificates (IRP5s/IT3(a)s) must also be issued to employees. 

What the EMP501 achieves

The Employer Reconciliation Declaration (EMP501) is effectively a summary of all the monthly Employer Declarations (EMP201s) for the filing period or tax year, and as with the EMP201, also contains information regarding the ETI (Employment Tax Incentive), where applicable. 

The EMP501 matches the payroll information regarding the employees’ tax deducted or withheld from remuneration – the PAYE, UIF and SDL (Skills Development Levy) liability – as well as ETI, with the payments made to SARS and the information on the employees’ tax certificates.

As such an EMP501 reconciliation requires:

  • the monthly EMP201 employer declarations for the period detailing the payroll taxes liabilities (PAYE, SDL, UIF), as well as ETI 
  • all employees’ updated details and correct values on their (IRP5s/IT3(a)) tax certificates 
  • actual payroll tax payments made to SARS.  

The values on the EMP201 declarations and the tax certificates should balance with actual payments made to SARS.  

An accurate and correct EMP501 reconciliation is important because SARS uses the IRP5/IT3(a) certificate information submitted by employers through the annual reconciliation process to prepopulate the employees’ annual income tax returns (ITR12). Employees cannot change this information, so any incorrect information will influence the employee’s personal tax assessment.   

The reconciliation process also allows employers to review the monthly EMP201 declarations and if any discrepancies are identified, these must be corrected before submitting the EMP501.  

Furthermore, ETI refunds (unused ETI amounts) can only be claimed by submitting interim and annual reconciliations (EMP501s). Failure to do so will result in an ETI refund being forfeited.  

The solution to a hassle-free EMP501 submission

In theory, if all the employees’ details are correct and updated, and each EMP201 for the period was correctly completed, submitted and paid, the EMP501 reconciliation should be quite simple. 

In reality, it seldom is. 

Here are a few of the most common examples where the recalculated (actual) monthly liabilities could differ from the original liability amount declared on the EMP201s:

  • A delay in implementing the correct tax tables resulting in an over/under-deduction of tax.
  • Any administrative timing difference in updating your payroll records with updated employee information.
  • Differences arising due to fluctuations in monthly remuneration.  
  • An over/under-deduction where, for example, an employer spreads an employee’s 13th cheque tax over a year and the employee resigns before the bonus is due. 


Any differences must be reconciled and corrected before the EMP501 can be submitted. 

In addition, verified and updated employer and employee information is required to successfully submit the EMP501 reconciliation. 

This all adds up to a potentially time-consuming and frustrating process. Of course, the simple solution is to ensure that at all times, the employer and employee information is updated and correct, and that each month, the correct EMP201 declarations and payments are made and that any discrepancies are corrected promptly. 

Given the complex nature of employee taxes, a recognised payroll system with automatic updates when tax and other changes are made, is a crucial tool to achieve updated and correct payrolls month after month, and as a result, hassle-free EMP501 reconciliations.

Running out of time? 

With the next deadline for this year’s final EMP501 reconciliation around the corner, some companies may realise that they are running out of time. 

Before the end of May, all employees’ information must be verified and updated – including valid ID/passport numbers, employee income tax numbers, residential and postal addresses, payment methods and bank account details, and employee classifications. It is not possible to submit the EMP501 reconciliation unless all the mandatory fields for each employee are correctly completed.   

The employees’ tax certificates must also reflect all the income, deductions, benefits and contributions pertaining to each employee for the period, recorded under the relevant codes.

Keep in mind that this information is legally required, and you may be subject to penalties for missing information.  

If there are any errors, the certificates must be rectified and the EMP501 reconciliation resubmitted. This is costly in time and resources and may result in penalties.

Offences and penalties

An employer who, ‘wilfully or negligently’, amongst others fails to submit monthly declarations; interim and annual reconciliations and/or the annual IRP5/IT3(a)’s is guilty of an offence and is liable, upon conviction, to either imprisonment for up to two years or both imprisonment and a fine.  

Non-compliance also includes wilful or negligent failure to deliver an IRP5 to an employee or former employee, deducting or withholding employees’ tax from employees without paying it to SARS, or failure to keep the correct employee certificates, EMP201 and relevant documentation for audit purposes.

The final reconciliation and submission of employee tax certificates to SARS must take place by the end of May. Not doing so will result in a PAYE admin penalty being imposed on the EMP501 return reconciliation for non-compliance. The penalties are levied in 1% increments over a period of 10 months and are based on the employer’s liability for that year of assessment (12 month period). Depending on the number of months outstanding, the penalty is up to 10% of the total employees’ tax liability. 

Given all these obligations to be met, as well as the penalties that may apply, companies are well-advised to seek assistance from a professional with the necessary knowledge, experience and resources to assist in completing the process in the few short weeks ahead, as well as to ensure hassle-free EMP501 recons in future. 

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Companies: How Will the Reduced Tax Rate and Assessed Loss Rules Affect You?

What the government gives it must first take away.”

John S. Coleman

It certainly seemed like a win for taxpayers when Finance Minister Enoch Godongwana announced in his February Budget Speech that the corporate income tax (CIT) rate has been reduced from 28% to 27% for companies with a tax year ending on or after 31 March 2023. 

But as we are reminded by John Coleman’s quote: “What the government gives it must first take away.” 

In this particular instance, to give a 1% reduction in the corporate tax rate, government limited the tax relief corporate taxpayers have enjoyed in the past in terms of assessed losses and interest deductions. 

According to Treasury, South Africa is following an international trend evident over the past few years to restrict the use of assessed losses and reduce the corporate income tax rate.

What’s the link to the corporate tax rate reduction? 

The 1% reduction in the corporate tax rate is expected to cost the fiscus R2.6 billion -in the year of assessment commencing on or after 1 April 2022. To ‘neutralise’ this – and thus achieve a revenue-neutral reduction in the corporate tax rate – two further changes to corporate tax rules have been made.

The first is further limitation of corporate interest deductions, specifically on multinationals; and the second is restrictions on the use of assessed losses to reduce future corporate tax liabilities. 

The first involves changes to, amongst others, the scope and thresholds of the interest deduction limitation, achieved by fixing and limiting the interest deduction limitation ratio to 30% of a taxpayer’s “adjusted taxable income”, instead of the earlier flexible percentage (adjusted upwards and downwards based on the average repo rate) capped at 60%.

What are the new assessed losses rules?  

Assessed loss rules were originally created to smooth the tax burden for:
– businesses that require a significant upfront capital outlay, causing assessed losses to accumulate before any profit is realised;
– cyclical businesses that realise losses in some years and profits in others, such as farming operations, and
– companies that suffer temporary setbacks and losses before recovering to become profitable again.

As a result companies could previously offset the full balance of any assessed loss carried forward from a previous tax year against all its taxable income for the current year. In addition, companies could carry over any assessed loss balance remaining to future years indefinitely subject only to the requirement that the company continues to carry on a trade. In effect, it meant that a company would only become liable for income tax once it earned a taxable profit and the balance of the assessed loss was exhausted. 


Under the new rules, assessed losses brought forward from a previous year of assessment – regardless of the amount – can only be offset against the higher of R1 million or a maximum of 80% of taxable income for the current year. 

This means that income tax will now always be levied on 20% of the taxable income for the year where the taxable income in the current year exceeds the R1 million threshold, no matter what the assessed loss balance carried forward from previous years may be. This will have adverse tax cash flow implications for some companies. 

Small companies unaffected, and losses are not forfeited, unless…

Smaller companies with a taxable income below R1 million will not be affected by the new rules.


Further good news is that companies will not forfeit the balance of the assessed loss that could not be utilised. The balance can be carried forward to the next tax year, provided that the company earns income from trade in the succeeding year of assessment.

However, beware: if a company does not trade for a full year of assessment and no income is earned from such trade, the assessed loss will be lost. 

When do the new rules apply, and which companies are affected?

The new rules apply to any year of assessment that ends on or after 31 March 2023, which, in more practical terms, means years of assessment that begin from 1 April 2022 onwards. 

It is also important to note that the new limitation will apply to assessed losses generated prior to the effective date, as well as those arising after 1 April 2022.

Some companies will not be affected immediately, for example, companies with no assessed loss balance, or those with a taxable loss. 

The cash flow implications, with examples

For those companies affected, the changes will have tax cash flow implications, best illustrated by the way of examples –

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Planning to Cease Being a South African Tax Resident? What You Should Know Before Approaching SARS

“Dear IRS, I am writing to you to cancel my subscription. Please remove my name from your mailing list.”

Snoopy 

According to some estimates, as many as 1,900 millionaires have left South Africa over the last few years. A New World Wealth Africa report indicates that 4,200 high net-worth individuals left the country over the last 10 years.  

Whether due to choice or circumstances, a taxpayer ceasing to be a tax resident of South Africa must declare the change to SARS.

As the number of wealthy and skilled South Africans who are emigrating increases, SARS recently announced that another channel has been made available to taxpayers to inform SARS as above.

You can now also inform SARS through the Registration, Amendments and Verification Form (RAV01) available on eFiling or at a SARS branch, by capturing the date on which you ceased to be a tax resident.   

Alternatively, you can inform SARS by capturing the date on the ITR12 tax return, as before.

Informing SARS via any channel could trigger unintended consequences. In addition, to qualify the taxpayer will have to substantiate how the qualifying criteria are met.

Many intricacies 

It is not as simple as filling in a form. Numerous factors are taken into account to determine whether a taxpayer has ceased to be a tax resident of South Africa.

There are three bases for qualification for individuals:

  1. Cease to be ordinarily resident
  1. Cease by way of the physical presence test
  1. Cease due to application of a Double Tax Agreement (DTA).

Whether an individual ceases to be a tax resident in South Africa is based on the manner in which such individual has been a tax resident. If the taxpayer has been ordinarily tax resident, the intention to cease will be supported by various objective factors. If a person has ceased to be ordinarily tax resident, it will be from the day such person ceased residence.

An individual, who is resident by virtue of the physical presence test, ceases to be a tax resident when that person has been physically outside the Republic for a continuous period of at least 330 full days. The individual will be deemed to have ceased to be a tax resident from the day such person left South Africa.

An individual who has become a tax resident of another country through the application of a double tax agreement will also cease to be a resident for tax purposes in South Africa.

Companies

A company is deemed to be South African tax resident either if it was incorporated here or if its place of effective management is located locally.

A company’s place of effective management may no longer be located in South Africa, for example, when the majority of a company’s board of directors move offshore on a permanent basis. 

If a company becomes a tax resident of a jurisdiction with which South Africa has a double tax agreement, the company would normally cease to be South Africa tax resident. 


Beware the unintended consequences

The intended outcome of informing SARS of breaking tax residency is that the taxpayer is no longer taxed in South Africa on worldwide income, but only on South African sourced income. 

It may also have unintended outcomes. Informing SARS via any channel will trigger a case number as well as a request for various documents and substantiations, which taxpayers are obliged by law to provide.  

If the declaration is made via the RAV01 form on eFiling, the completed declaration form must be submitted with the relevant supporting documentation. If the declaration is made on the income tax return (ITR12), the supporting documents and information requested will depend on the basis on which you have ceased to be a tax resident. 

In many instances, advising SARS that you or your company intend to cease to be a tax resident will trigger an audit. 

Potential tax liability 

For individuals, ceasing to be a tax resident triggers a deemed disposal of worldwide assets, and exposes the taxpayer to possible capital gains tax. 

Depending on the type of assets held and where they are located at the time when an individual breaks tax residence, a deemed disposal for capital gains tax purposes will take place when the person’s local tax residency ceased. The individual will be deemed to have disposed of worldwide assets at market value to a South African tax resident, with some exceptions such as certain personal-use assets and immovable property situated in South Africa.

Where a company ceases to be a South African tax resident, a capital gains tax may be triggered, and an additional dividends tax may also arise, among other possible unintended consequences.  Given the complexity of the provisions and potential tax liability, it is recommended that taxpayers rely on professional advice covering not only their South African tax position, but also their tax position in their new country of residence, well before approaching SARS. 

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What The New Employment Tax Incentive Limits Mean for Your Business

“Since the unemployment rate in the Republic is of concern to Government; and since Government recognises the need to share the costs of expanding job opportunities with the private sector…”

Preamble to the Employment Tax Incentive Act 26 of 2013 [ETI Act]

During Finance Minister Enoch Godongwana’s 2022 Budget Speech, a substantial 50% increase in the limits for the Employment Tax Incentive (ETI) was announced, effective from 1 March 2022. This will increase the amount of tax relief employers can claim when employing young people. 

ETI fast facts 

  • An incentive encouraging employers to hire young work seekers aged between 18 and 29 years.
  • Reduces the employer’s cost of hiring young people through a cost-sharing mechanism with government.
  • Can be claimed for a 24 month period for all employees who qualify. 
  • Came into effect on 1 January 2014 and will end on 28 February 2029.
  • ETI is claimed by reducing the amount of Pay-As-You-Earn (PAYE) due by the company, leaving the wage received by the employee unaffected. 

The new limits 

 

As the monthly remuneration increases, the amount of the rebate reduces: at the upper limit with a monthly remuneration of R6 400, the monthly rebate is R750. 

Even so, especially for companies with many employees, these rebates will add up on a monthly basis, and stack up over two years. There is no limit to the number of qualifying employees that you can hire.

Pitfalls to be aware of 

  • Beware the qualifying criteria 
  • Employers must meet the qualifying criteria on an ongoing basis, including being registered for Employees’ Tax (PAYE) and being tax compliant. 
  • Employees must meet the qualifying criteria on an ongoing basis, including having a valid South African ID or permit; be between 18 and 29 years old; earning between minimum wage or R2 000 and R6 500 for a 160-hour month; and who is not a domestic worker or a “connected person” to the employer.
  • Beware the continuous changes 
  • The value of the ETI is not static but depends on the value of the monthly remuneration paid to the qualifying employee, and must be calculated each month for each qualifying employee. In addition, if a qualifying employee worked less than 160 hours in the month, the value of the ETI must be calculated proportionally. 
  • The ETI is constantly being refined, expanded and tightened – including a series of amendments to the ETI Act with effect from 1 March 2022, so employers claiming ETI must stay updated to ensure they remain within the bounds of the ETI Act.  
  • Beware the deadlines 
  • If all the allowable ETI wasn’t used at the end of each six-month reconciliation period (1 March – 31 August and 1 September – 28 February), employers may be refunded the amount, if they are fully tax compliant. 
  • A non-compliant employer will have until the end of the next reconciliation cycle to correct any non-compliance and be able to receive the ETI refund. If the employer doesn’t become compliant by the end of the next six-month reconciliation period, the ETI refund will be forfeited.
  • Beware the possible penalties 
  • Penalties equal to 100% of the ETI claimed will apply when an employer claims the ETI for any employee who does not qualify.  
  • Penalties imposed will result in under-payment of employees’ tax, which could result in possible interest and penalties in terms of the Tax Administration Act.
  • A penalty of R30 000 will be levied for each employee displaced to employ an employee who qualifies.
  • It has been proposed that the ETI Act be amended to impose understatement penalties on reimbursements that are improperly claimed.
  • Beware the potential of audits 
  • A number of taxpayers have faced time-consuming and costly verifications and audits of their ETI claims.
  • Additional assessments issued by SARS may reverse the ETI initially claimed by employers.
  • Recordkeeping is required by the ETI Act.
  • Beware of potential scams
  • Employers should exercise vigilance regarding tax abusive ETI schemes and scams offered by third parties, as the employer would carry all the risk in respect of the tax and labour obligations.  

Seek professional assistance to ensure you can navigate all these potential pitfalls and claim this ETI incentive, so you can employ more young people while sharing the cost with government. 

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Multiple Income Streams? The PAYE Dangers and a New Option for Pensioners

“Every advantage has its tax.”

Ralph Waldo Emerson

An unfortunate reality for many non-provisional taxpayers with multiple income streams is a large and unexpected tax liability following a year-end tax assessment – even though PAYE was paid each month on their income streams. 

Taxable income streams include salaries and wages, allowances, pensions and retirement annuities, rental income and investment income. Many taxpayers have multiple income streams: a common example is a pensioner receiving two pensions paid by two different administrators; or receiving both a pension and a retirement annuity. Other examples would include a person holding two part-time positions, or receiving both a pension and a salary, such as a widow who is employed but also receives a deceased spouse’s pension. 

In all of these and other cases where taxpayers who receive income from more than one source of employment, pension, or annuity, the employees’ tax (PAYE) deducted by the respective employers or retirement funds may not be enough to cover their final annual tax liability assessed at the end of the year. 

How can the PAYE deductions not be enough? 

Because SARS calculates tax liability annually on assessment, a taxpayer could well face an unexpected and large tax liability, even after having paid PAYE every month on various income streams.

This is because the South African tax system requires adding together all sources of income of a taxpayer into a single total sum, which then determines the tax rate which applies to all the income combined. 

So, the more the total income from all sources, the higher the tax rate and the more tax due. 

By deducting PAYE every month, employers or retirement funds assist taxpayers to pay their tax liability in advance over the year. When only one employer or retirement fund is involved, the total PAYE deducted monthly should be equal to the tax liability on assessment, leaving no extra tax due on assessment.

However, where more than one employer or retirement fund is involved, each will deduct the correct amount of PAYE on only the salary or pension/annuity they each pay. In addition, each will also independently apply the rebates the taxpayer is entitled to.

When all the sources of income are added together during the year-end assessment, and any rebates are applied only once, the total income often pushes the taxpayer into a higher tax bracket. Applying this correct and higher tax rate on the full amount then results in an additional amount of tax to be paid on assessment.

In practice 

The “pension plus salary” example below illustrates just how much more the tax payable on the total combined income assessed at the end of the year could be than the PAYE paid on each separate income stream during the year.

Source: SARS

The taxpayer in the example will face an additional R40,570.00 tax liability on assessment, because although a total tax of R22,270.00 had already been deducted by way of PAYE paid during the year, it was too little to cover the full annual tax liability of R62,840.00.

Large, unexpected tax debts such as this often lead to delayed payments and therefore penalties, further burdening the taxpayer.

How to avoid the problem 

Taxpayers with multiple income streams, who are at risk of a large tax liability when the annual income tax return is assessed at the end of the tax year, need to have more accurate monthly amounts of PAYE deducted.

Fortunately, the Income Tax Act allows these taxpayers to make additional voluntary tax payments by making a written request to their employers, insurance companies and/or retirement fund administrators to deduct additional monthly PAYE. 

To voluntarily pay more PAYE, you have two options –

  1. The first option involves applying a single percentage at which PAYE should be deducted by all employers and retirement funds that pay a salary or pension/annuity to you. 
  1. The second option is to increase the amount of PAYE deducted by one or more employers or retirement funds but is more complex to calculate. 

Either way, professional assistance is highly recommended. Ensuring that more appropriate amounts of PAYE tax is deducted during the year will eliminate surprises and ease the financial burden when submitting annual tax returns at the end of the tax year. 

Pensioners – a new option for you from 1 March

Not many pensioners are currently making use of this option but, fortunately, recently introduced legislation has enabled SARS to provide them with a new service from 1 March. Using the latest data available to it, SARS will determine a more accurate PAYE deduction amount for pensioners with multiple income streams, and then automatically provide their retirement fund administrators with this new PAYE deduction percentage. This will allow a more accurate amount of PAYE to be deducted from pensions or annuities payable from March 2022. The rate will be valid for the entire tax year unless the taxpayers’ circumstances change. However, you can request retirement fund administrators to rather use the normal PAYE deduction rate, or to deduct PAYE at an even higher rate than the increased rate provided by SARS.

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SARS Makes SMME Tax Compliance Easier

Tax complexity itself is a kind of tax.”

Max Baucus

NOTE: Bear in mind that although many of the resources mentioned below are addressed by SARS to you as a private taxpayer, there is just no substitute for professional advice and assistance when it comes to matters of tax. Contact us at ep@emmapardoe.co.za for assistance.

“SMME Connect # 1”, the January issue of a new SARS newsletter for SMMEs available here, has focused on the issues around tax compliance in the sector. In the letter SARS acknowledges problems around the pandemic that lead to increased difficulty for SMMEs attempting to meet their tax obligations saying, “We acknowledge that the COVID-19 pandemic has impaired our ability to be physically ‘At Your Service’ as we had to limit the number of taxpayer visits at SARS branches and promote digital channels”. It adds, however, that the bulk of the problem comes from the fact that business owners in the sector either find their obligations difficult to understand, or are not aware of their obligations, and just what is required of them. 

In acknowledging the problem SARS has also stated that its direct aim is to make the processes simpler, increase knowledge around requirements and ultimately to bring all SMMEs up to date on their tax compliance. This is what the letter, aligned with a new initiative called Vision 2024, sets out to correct.

Aligned with “Vision 2024”?

In March 2020 SARS introduced their new Vision 2024, which they said was an attempt to update the goals and services of SARS in order to improve efficiency and their ability to collect owed taxes. 

“Our Vision 2024 is to build a smart modern SARS with unquestionable integrity admired by Government and public and our international peers. We proceed from the base that all taxpayers are honest and if we make it easy and seamless, compliance will increase simultaneously,” SARS said in a statement at the time.

In line with this, SARS’ new newsletter endeavours to not place blame for past non-compliance. The issue in fact begins with a number of startling stats on the SMME sector in the time of the pandemic. SARS says “95% of SMMEs reported a decrease in revenue attributed to the consumers’ inability to earn income” and that “90% of SMMEs are either struggling or temporarily closed”. The purpose of these stats is for SARS to say, “We understand your plight and aren’t out to get you.” It goes on to state that “When you comply with your tax obligations, you place your business at an advantage by eliminating the potential cost of non-compliance and administrative penalties.”   

What are the changes?

In order to simplify the system and make it easier for SMMEs to meet their tax obligations SARS has introduced a number of new measures, initiatives and system upgrades.

The first step is to confirm your “tax compliance status.” This can be done by acquiring a tax compliance pin. The process for doing this is illustrated on a simple YouTube video. The pin can then be used by your accountant over the next 12 months to verify your compliance status.

In addition, SARS has also introduced an online query system designed at assisting taxpayers to raise queries with SARS without going into a SARS branch or calling the contact centre. The query system allows taxpayers to fill in a form and, amongst other things, request a tax number, submit supporting documents, submit a payment allocation, report new estate cases, register a tax representative, make tax compliance status requests and verify tax compliance status.

SARS has also introduced a new “Enhanced Debt Management” process, which will allow taxpayers to arrange debt repayments directly through eFiling for four separate tax types: Personal Income Tax, Corporate Income Tax, Value-Added Tax and Pay-As-You-Earn (PAYE). Previously, taxpayers could only make payment arrangements via a debt collector who had been appointed by SARS, in person at a SARS branch, utilising the debt management regional email addresses, or on the My Compliance Profile (MCP) on eFiling. 

The new Enhanced Debt Management Process easily allows individuals and companies to catch up on outstanding administrative penalties and taxes from a number of different pages on the site and gives them the ability to: 

  1. Initiate and simulate a payment arrangement, with an instalment plan of up to 36 months,
  1. Supply the reason for the request and preferred method of payment,
  1. Attach mandatory supporting documents where required,
  1. Submit the request if they meet qualifying criteria.

These new facilities come with a reminder for business owners to also submit their own income taxes, which are a requirement in law that can affect the business’ compliance status.

Communication and social media

Finally, SARS has also updated their communications generally, with the newsletter only being one of three communication tools to educate people on their obligations. While the best solution remains conferring with a professional for all possible tax solutions, SARS’ new YouTube channel, which covers such diverse topics as, Understanding Tax Compliance Status, Illicit Trade and Counterfeit Procedures, Value-Added-Tax, Turnover Tax, Registration, Licencing and Accreditation and more, will certainly help the modern SMME owner to better understand their responsibilities when it comes to taxes.

SARS has also encouraged SMME owners to follow the service on social media through the following channels: Facebook, Twitter, LinkedIn and YouTube.

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Budget 2022: Your Tax Tables and Tax Calculator

Individuals, special trusts, companies and small business corporations will see some relief from the Budget 2022 proposals, and to help you quantify that, and as a convenient reminder of the various other taxes that remain unchanged, we share both the official SARS Tax Tables and a link to Fin 24’s Budget Calculator (just follow the four-step process to do your own calculation).

The Tax Tables cover Individuals, Special Trusts and Trusts, Companies, Small Business Corporations, Turnover Tax for Micro Businesses and Transfer Duty. 

Click on the links below each Table for the full SARS “Budget Tax Guide 2022”.

How much will you be paying in income tax, petrol and sin taxes? Use Fin 24’s four-step Budget Calculator here to find out.

Have a look at the tax tables below for the new Individual and Special Trust income tax brackets, and for a convenient reminder of the various other taxes that remain unchanged – 

Source: SARS
Source: SARS
Source: SARS

If you require assistance with filing your tax returns or have any tax queries, contact us at ep@emmapardoe.co.za for assistance.

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Budget 2022: Your Share of Billions in Tax Relief and Business Support

“Now is not the time to increase taxes and put the recovery at risk! Accordingly, we have decided to keep money in the pockets of South Africans.”

Finance Minister Enoch Godongwana

The 2022 Budget Speech brought some good news and welcome tax relief to personal and business taxpayers, 

This is possible thanks to tax revenue collection estimates that exceed the 2021 Budget estimate by R182 billion. Given the improvement in revenue collections, government proposes R5.2 billion tax relief to help support the economic recovery, provide some respite from fuel tax increases and boost incentives for youth employment.

Tax changes for individuals 

  • Personal income tax brackets and rebates will be adjusted downwards by 4.5% to prevent taxpayers moving into higher brackets due to inflation, resulting in tax relief of an estimated R13.5 billion.
  • The income tax threshold (under 65) has increased to R91,259 per year. 
  • Medical tax credits will increase from R332 to R347 per month for the first two members, and from R224 to R234 per month for additional members.

Tax changes for companies 

Reduction in company income tax rate from 28% to 27% from 1 April 2022 (i.e. for tax years ending on or after 31 March 2023). 

Support for small businesses 

To support businesses in distress owing to the Covid-19 pandemic, a new business bounce-back scheme was announced; a new version of the R200 billion loan guarantee scheme that was part of the R500 billion stimulus package announced at the onset of the Covid-19 pandemic in 2020. 

It will be implemented using two mechanisms which will be introduced in sequence:

  • Small business loan guarantees of R15 billion will be launched next month provided through participating banks and development finance institutions, with Government underwriting the first 20% of loan losses.
  • Treasury wants to introduce a business equity-linked loan guarantee support mechanism by April this year.

Some other issues to be aware of 

  • The Minister cautioned that while VAT and other taxes have not been increased, this may change in the future, saying that if there are permanent expenditure increases in coming years, there would be no choice but to revisit this.
  • Amendments are proposed to provisions relating to the taxation of variable remuneration to ensure wider application of these rules – particularly to the informal sector (‘Variable remuneration’ includes overtime pay, bonuses or commission; an allowance or advance paid for transport expenses; an amount the employee becomes entitled to as a result of unused leave; any night shift or standby allowance; or any amount paid or granted for a reimbursement as contemplated in the Act).  In effect this income will only be taxed on receipt.
  • Provisional tax: Government has proposed a review of the provisional tax system on the basis of international developments. 
  • Corporate tax reduction will be funded by limiting the interest deduction and assessed losses. Assessed losses brought forward will be limited to 80% of taxable income. Smaller companies with a taxable income below R1 million will be exempt.
  • To address abuse of such incentives such as the Employment Tax Incentive, government proposes to impose understatement penalties on reimbursements that are improperly claimed in terms of this incentive. 
  • The Minister urged all companies that have not already done so to develop plans to progressively reduce their carbon emissions, to avoid facing steep taxes. Exporters will also face overseas border taxes for carbon-intensive goods such as iron and steel, which will reduce their competitiveness. 
  • SARS will be reviewing the processes surrounding the issue of tax clearances as well the declaration of the returns in order to curb tax compliance status abuse in which taxpayers may file an inaccurate return in order to obtain a tax clearance.
  • To assist with the detection of non-compliance or fraud through the existence of unexplained wealth, all provisional taxpayers with assets above R50 million will be required to declare specified assets and liabilities at market values in their 2023 tax returns. 
  • Other future tax proposals include plans for a new personal income tax regime for remote work, a review of the exemption of foreign retirement benefits in domestic tax legislation, a review of depreciation and investment allowances.
  • SARS says it focused on deliberate work audits of large business, which has generated an additional revenue in excess of R4 billion. It will focus on a number of revenue-generating priorities, which amongst others include the expansion of the use of data and intelligence; increasing capability to maximise debt collections; implementing the Davis Tax Committee recommendations for the corporate and High Wealth Individual compliance landscape; accelerate criminal investigations and counter illicit practices; and shaping the policy on the informal economy.
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Top 10 Complaints Against SARS: What You Can Do to Protect Your Rights

“… the OTO commits to continue doing everything possible to ensure that taxpayers are not forced to pay a cent more than what is required.”

Judge Bernard Makgabo Ngoepe, the Tax Ombud

The list of the top 10 complaints made against SARS over the last eight years to the Office of the Tax Ombud (OTO), published in its recent newsletter, makes for interesting reading, and highlights the areas where taxpayers are most likely to encounter pitfalls in their dealings with SARS. 

The Top 10 complaints made against SARS

  1. SARS placing unwarranted stoppers on taxpayers’ accounts for refunds not to be paid, significantly impacting the taxpayer’s cash flow. 
  1. Delays in finalising verifications result in delays in releasing refunds due; even when taxpayers have submitted all the requested information.
  1. Non-adherence by SARS in finalising dispute resolution within the dispute resolution timelines – already an identified systemic issue. 
  1. Incorrect allocation of payments, often first covering administrative penalties before principal debt and ignoring taxpayers’ letters to SARS about how to allocate the payments.
  1. Taxpayers do not receive outcomes of their objections, and in some instances, SARS could not prove that they had sent the outcomes to the taxpayer.
  2. Recalled refunds where SARS pays refunds into taxpayers’ bank accounts and then recalls these refunds, in some instances taking more than six months to resolve the issues.
  1. E-filing profile problems for tax practitioners, resulting in them not being able to add or remove clients from their profiles. 
  1. SARS deducting more money from taxpayers’ bank accounts than it should, prejudicing the taxpayer financially.   
  1. Banking details of taxpayers have been updated, but the refunds are still not released. 
  2. SARS Complaints Management Office (CMO) incorrectly rejects taxpayers’ complaints lodged with it.

Source: OTO Fair Play Issue 22

The Ombud has also launched a new taxpayer rights awareness campaign, #TaxpayersRightsMatter, to help improve taxpayers’ understanding of their rights and the recourse available if their rights are not upheld by SARS.

What are your rights as a taxpayer? 

Issues with refunds feature quite prominently on the list of complaints, as do delays and ignored requests or complaints. These certainly constitute infringements of taxpayers’ rights, when considering the brief overview below of the rights related to these complaints.    

The interaction between SARS and taxpayers is governed by the TAA (Tax Administration Act), and SARS’ Service Charter also stipulates service levels and time frames.  

The TAA, like all laws in South Africa, is also subject to the Constitution and the Rule of Law. Conduct inconsistent with the Constitution is invalid and illegal. 

Some key features and principles of the Constitution are included in other Acts such as the TAA, PAIA (Promotion of Access to Information Act) and PAJA (Promotion of Administrative Justice Act). 

  • Taxpayers’ Constitutional Rights 
  • The right to privacy includes the right not to have your person, home or property searched; your possessions seized; or the privacy of your communications infringed. SARS cannot search or seize in violation of this Constitutional right. 
  • The right not to incriminate yourself – there are Constitutional restrictions on the information SARS can use to determine your taxes and potential penalties. 
  • The right to a high standard of professional ethics as well as rational and accountable actions from SARS; services provided impartially, fairly, equitably and without bias; transparency; and accessible and accurate information. 
  • Taxpayers’ Legal Rights 
  • The TAA details many taxpayers’ rights including, for example, SARS must keep taxpayers informed at all times, including providing a Letter of Findings before issuing a revised assessment. 
  • PAIA provides the right of access to information, detailing rules regarding how SARS is allowed to obtain information and ensuring taxpayers can find out what information SARS has accessed.
  • PAJA protects the right to just administrative action, requiring that any action by SARS must be lawful, reasonable and procedurally fair. 
  • Taxpayers’ Rights as per SARS’ Service Charter 
  • Where a current year’s refund is due to a taxpayer and no other debt is due; all obligations have been met; SARS administrative control processes are adhered to; and no inspection, verification or audit is required or has been initiated; SARS will endeavour to pay the current filing period refunds within 7 business days of finalising the final assessment. 
  • SARS endeavours to provide reasons for an assessment within 45 business days; to consider objections within 60 business days; and to respond to service complaints within 21 business days.

 How to protect your personal and business rights  

  • Careful compliance and excellent record-keeping are always the first line of defense when it comes to dealing with SARS. An annual tax audit by a professional will help ensure that you have the correct processes in place to ensure both. 
  • SARS’ Service Charter stipulates service levels and time frames with regards to returns and declarations; inspections, audits and verifications; refunds; payments; debt and disputes; and provides official channels for complaints. Understanding these can help you protect your rights as a taxpayer.  
  • Private and business taxpayers have free and independent recourse against SARS through the OTO. However, the powers of the OTO are very limited. It can only deal with complaints against SARS that relate to a service, administrative or procedural issue and only after all avenues of recourse within SARS have been exhausted, except where there are compelling circumstances or the matter is a systemic issue. For example, the Tax Ombud has no control over how long SARS will take to implement its recommendations, which are also not binding on either SARS or the taxpayer.
  • Access to an expert who can defend you or your business in the event of a tax dispute is essential.  
  • If taxpayers are uncertain of their rights or if their rights are being infringed, they must seek expert advice to protect their Constitutional and legal rights.
  • A long list of High Court cases against SARS reveals a growing trend of taxpayers seeking legal recourse against procedurally unfair conduct by SARS or administrative decisions by SARS that prejudice the taxpayer’s rights. The cost of legal defense is often prohibitive, making tax risk insurance worth considering to ensure access to experts in constitutional and tax law when required.
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Festive Season Cybercrime Alert: Tips from SARS

“Cyber Attack: An attack, via cyberspace, targeting an enterprise’s use of cyberspace for the purpose of disrupting, disabling, destroying, or maliciously controlling a computing environment/infrastructure; or destroying the integrity of the data or stealing controlled information.”

CSRC – Computer Security Resource Center

South African businesses, already facing significant risk of cyberattacks, have been warned to step up their cybersecurity as the festive season is expected to see significantly more and increasingly sophisticated cyberattacks. Below are listed some of the common types of cyberattacks.

Common cyberattacks

  • Phishing (random fraudulent emails), spear phishing (emails targeting specific people or companies), vishing (voice phishing) and smishing (SMS phishing) – these all refer to fraudulent communications that appear to come from a reputable source, such as a bank or a government organisation, with the aim of tricking employees or individuals to share data, pay money to criminals or download malware.
  • Malware – including viruses, worms, trojans, spyware, rootkits – typically used to breach a network when a user clicks a link or an email attachment from an apparently trusted source that then installs risky software.
  • Ransomware attacks – ransomware infects networks and encrypts or locks data, allowing attackers to demand a ransom for unlocking or releasing the data.
  • Hacking – including distributed denial-of-service attacks (DDoS) and keylogging.
  • Man-in-the-middle (MitM) or eavesdropping attacks in which attackers insert themselves between a user’s device and a network to filter and steal data, commonly through unsecure public Wi-Fi and compromised devices.

SARS: a favourite cyberattack ruse 

SARS says that there is a steady increase in scams and attacks in which the SARS brand is abused, via the Internet, emails, spoofed websites, SMSes, unsolicited telephone calls and even social networking sites such as Facebook, Twitter and others.

A firm criminal favourite are phishing scams involving false “spoofed” emails made to look as if they were sent by SARS. These fraudulent emails contain links to fake forms and malicious websites purporting to be authentic and lure unsuspecting taxpayers to disclose private and confidential information such as bank account details. Examples include emails that appear to be from “returns@sars.co.za” or “refunds@sars.co.za” indicating that taxpayers are eligible to receive tax refunds. 

The latest scams involve smishing, which is phishing via SMSs, and vishing which most recently involves taxpayers being called by a person purporting to be a SARS employee to inform them that SARS owes them money. 

Another common cyberattack approach involves refund scams in which identity thieves use a legitimate taxpayer’s identity to file a tax return and claim a refund fraudulently. Yet another threat involves cybercriminals using personal or company information to change the banking details on the taxpayers’ SARS profiles. 

A further version involves criminals purporting to be SARS auditors or employees contacting businesses using all the means described above to inform taxpayers that they are under investigation and that an audit will be conducted.

SARS Tips for Improved Cybersecurity

  • Do not open or respond to emails from unknown sources and beware of false SMSes.
  • Be suspicious of emails and/or SMSes that request personal, tax, banking and eFiling details.
  • SARS will not request your banking details, login credentials, passwords, pins, credit/debit card information, or other confidential information by phone, SMS, email or websites.
  • SARS will never notify you about refunds by telephone, SMS or email.
  • Immediately report a notice or letter from SARS that states:
  • More than one tax return has been filed in your name
  • You have a balance due, refund offset or have had collection actions taken against you for a year in which you did not file a tax return   
  • SARS records indicate you received a salary from an employer that you don’t work for
  • there has been a payment error or incorrect refund requiring you to deposit the “overpayment” into a bank account. 

Speak to your accountant first!

It is easy for criminals to dupe unsuspecting taxpayers, and yet, at the same time, taxpayers should never simply dismiss or ignore a notice or demand from SARS as a scam. 

The best line of defence against cyberattacks that misuse the SARS brand is to get advice before taking any action. If you suspect the legality of a particular communication or believe you have been contacted by a fake SARS representative, immediately contact your accountant, who will be able to verify the communication or report suspicious activity for you.

This will ensure that you never fail to respond timeously and correctly to legitimate SARS communications, while also safeguarding you from becoming a victim of a cyberattack, especially during the upcoming festive season which promises to be a busy one for cybercriminals. 

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What To Do When Preparing to Sell Your Business

“As much as you might love running your business, you must have an end-goal in the plan. At the very least, an exit strategy keeps you from turning your business into a glorified job – working from home, but with longer hours.”

Kevin J. Donaldson)

A new year beckons, and you may be thinking that it will soon be time to sell your business. Perhaps you are nearing the age of retirement, or want to move on to a new endeavour? Whatever your reason, your business could well be your most valuable personal asset, and something you have invested in for years, if not decades. The prospect of selling can therefore feel overwhelming, and clearly you want to receive a fair price for the asset you’ve worked so hard to create.

Selling your business is therefore likely to be not only a busy period, but an emotional one too and you’ll need to engage in extensive preparation if you want to come out satisfied at the other end. 

These tips will help you to prepare for a business sale and get the price you deserve for your company.

1. Have a reason why it is for sale

Anyone who is going to buy your business will want to know the reason why it is for sale. Your reason should be clearly thought out and easily explained to avoid spooking potential buyers. Simply saying “It’s time for me to move on” will not build anyone’s confidence. The aim here isn’t to obfuscate your reasons; honesty will always be appreciated.

A serious buyer will spend time doing their due diligence investigation and so know a fair amount about your business, its reputation and sustainability. So remember that whilst your books are likely to tell them more about the health of your business than your words, your words will give them an idea of what the reputation of the business might be and just what they are likely to be dealing with when it comes time to deal with existing clients and suppliers. Common reasons for exiting a business include retirement, partnership disputes, illness or death, feeling overworked or even plain old boredom. When explaining why you are exiting there is an opportunity to add in some of the strengths of the business. “I am feeling overworked”, becomes a lot stronger from a sales perspective when it’s backed up by, “We have so many orders” or “We have a reputation for never letting our customers down”. 

2. Give yourself time

Selling a business takes time and should not be done in a hurry. Trying to sell in a hurry can only mean the correct things are not in place, and buyers will sense your urgency. In general, you should give yourself at least one year to sell a business and preferably two. 

3. Get your finances in order

A company with clear, legible finances is also going to sell much quicker than one with a drawer full of receipts and a box of demands from SARS. It is essential at this stage to liaise with your accountant to ensure that all financial records are in place, fully up to date and that any outstanding issues are cleared up.

The more organised and accurate your accounting records are, the easier it is for a potential buyer to assess your company’s value. A potential buyer needs a clear picture of your financial condition, and that includes accurate financial statements for the past several financial years. When someone buys your firm, they may need to integrate your accounting data into their systems, and your accounting transactions must follow industry standards.

A company’s finances tell potential buyers a lot about a business and very few will take the plunge if things aren’t organised and transparent. For example, a purchaser can review your interest expense to determine if the expense is increasing as a percentage of sales. If interest expense climbs say 5% to 8% of sales, your firm’s total debt is also increasing.

There is a second, even more important reason your finances need to be accurate, and this is that you will need them to determine the value of your company. It is impossible to sell something if you don’t know what it is worth, and just how much value there is in it. Knowing your bottom-line price will be important come time for negotiations.

A vital consideration in determining the price is future prospects and profitability. The final purchase price will not be simply based on net asset value but also on likely future profits giving a potential return on investment (the purchase price). There is no substitute for professional advice here!

Also, be clear in your mind how you expect the payment to be made – a lump sum, an earn-out over so many years based on the projected profits being realised. A note here – most sale agreements have clawback clauses if the future profits do not materialise. You will need sound advice on what is in the agreement in this and other considerations.

4. Succession Planning

Making sure your business can thrive after you have left will make it a far more attractive proposition for a potential buyer. Hopefully you have always had a succession plan in place in the event that something happens to you, but if you don’t it’s time to get to work.

A succession plan may require you to train and mentor a successor, and to put legal documents in place (be sure to incorporate some flexibility in case a buyer has other ideas!). Both of these tasks are time consuming. If you plan on selling the business on to the employees then an Employee Stock Ownership Plan (ESOP) will need to be developed and, employees funding the ESOP will need a number of years to accumulate the funds to buy out the owner.

For each of these reasons, you should plan for succession as soon as possible. Putting a detailed plan in place can help you avoid a forced sale. A forced sale occurs when the owner is under pressure to sell the business, or the owner’s heirs are trying to sell the company. The seller does not have any bargaining power and will likely receive far less for the business when the sale is finalised.

Finally, in this regard: Consider your reaction and plans should the buyer ask you to stay on for a term or two while they prepare their own successors to take over from you.

5. Increase the value of your business

While it may be tempting to take your foot off the gas pedal as you prepare for a sale, this is exactly what you shouldn’t be doing. Businesses whose performance noticeably declines before all the documents are signed only give the impression that the owner is the only thing that matters, and this will give prospective buyers all the excuse they need to make a lowball offer.

On the contrary now is the perfect time to perform a SWOT (strengths, weaknesses, opportunities, and threats) analysis. Write down the key issues in each of those four areas. Get input from your staff, share your SWOT analysis with your team and ask them for feedback. Once you perform this analysis, you can start focusing on business improvements.

The aim is to make sure that the year before you sell is a record breaker. Imagine you are starting all over again and spend this year getting the word out about your business, building clientele, cementing long term contracts and relationships and cutting back on costs. So ideally start planning to maximise value at least a year before you sell!

Make sure that you account for every cost you incur to operate your business and if there are areas of the company that are not profitable, consider closing them. Now is not the time to be keeping your pet projects alive. Having a great year, cleaning out the business chaff and showing investors that the company has a strong future will undoubtedly provide a huge boost to your sales price.

6. Identify target buyers

As already indicated, selling a business takes time. You can speed up this process if you identify potential buyers and understand exactly why they might be eager to put in an offer. There are generally two types of reasons for buyers to take on a new going concern: financial and strategic.

Financial buyers treat the purchase as an investment, looking at the potential returns they can achieve. Their aim is to make an acceptable return on their investment and then flip the business either to another buyer or through an IPO. Financial buyers will consider the company’s track record based on a history of strong financial statements, and potential for solid growth. They won’t necessarily worry about flaws in the business as they will see these as opportunities to quickly increase the value before selling it off, but they will haggle every cent on the sales price to ensure the most profit for themselves.

Strategic buyers look for purchases that will fit into their own long-term business strategy. They may, for example, be competitors who are looking to expand vertically (to different parts of the supply chain) or companies that need to expand horizontally to a new industry to diversify their portfolio. Strategic buyers are typically larger and willing to pay more for the purchase, since they can immediately take advantage of economies of scale.

7. Bring a good team on board

The final step before actually putting the business up for sale is bringing in a strong team of experts. At the very least you will need an accountant to handle any financial questions the buyer may have and to advise you on choosing a lawyer to attend to the contractual side. 

Seek advice also on whether you should employ the services of a specialist broker to help oversee and facilitate the sale. Negotiating a sale yourself allows you to save money and avoid paying a broker’s commission, so it may be the best route to take when the sale is to a trusted family member or current employee, but still bounce that off your accountant first.

In other circumstances, getting a broker on board can help things run more smoothly as the broker will help free up your time to keep the business up and running, will help keep the sale quiet and get the highest price, because brokers are incentivised to maximize their commission.

At the end of the day, having the right people working toward your sale means that at the very least they will pay for themselves, and more often than not they will increase your profit.

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Read more about the article ‘Tis the Season for Giving but Beware the Taxman!
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‘Tis the Season for Giving but Beware the Taxman!

“Think of giving not as a duty but as a privilege.”

John D. Rockefeller Jr.

Christmas is a time for giving, and in our local business environment, as well as in many other markets around the world, it may even be unofficially expected of companies to give generously to their employees, to their clients and suppliers, and to the communities in which they operate. Many companies give generously in these ways, but may not be aware of the tax implications of their generosity. 

In this article, we briefly look at some of the tax implications of various forms of giving, to emphasise that before any corporate giving decisions are made, companies should seek professional advice about the tax implications. 

Giving to employees

  • Company Christmas party: For many employees the annual office Christmas party or lunch is a highlight: a great meal, free drinks and the opportunity to mingle socially with colleagues. Although the costs of such an event would have to be carefully considered, this would be a tax-deductible expense, regarded as a non-taxable occasional meal.
  • Gifts: Whether you are considering gift vouchers, physical presents or intangible gifts, there is no minimum value below which employer-provided gifts are tax free. If it can be regarded as an asset, it will be seen by SARS as a taxable benefit in the hands of the employee. 


Some examples include gift vouchers, prizes or awards; physical items such as a mobile device; and intangible gifts such as flights or accommodation. This applies whether the gift is given to an employee or an employee’s family member, such as a spouse or child. The cost to the employer of any such gift must be reflected as a taxable fringe benefit on the employee’s payslip, and PAYE must be calculated and deducted.

There are some exceptions. For example, in the case of a long service award (15 years or more), the first R5 000 of the cost of such a gift is not taxable, but any amount in excess thereof is taxable as described above. Other possible exceptions include where the employer incurs no cost in conferring the gifts, or where the gifts are utilised by the employees for business purposes. However, even these simplified scenarios are subject to complex considerations and should first be discussed with a professional.

  • Bonuses: When considering giving annual bonusses or “13th cheques”, remember that a bonus is taxed at the same rate as other remuneration. This means that the amount of the bonus will be added to an employee’s annual salary to determine the rate of tax payable for the year. However, the bonus amount might push some employees into a higher tax bracket, significantly eroding the amount of the bonus the employee receives after tax. Be sure to get professional advice on structuring bonuses to be tax efficient. 

Giving to clients/suppliers

  • Christmas functions: Where clients or suppliers are entertained at a Christmas function, expenses such as meals, venue hire and live entertainment can be claimed as a tax deduction. However, this is only allowed where the taxpayer can prove that expenses were incurred in pursuit of business. It will be necessary to keep a comprehensive schedule of the entertainment expenses along with the date, the venue, the company and people entertained, and the purposes of that entertainment (for example prospecting for a new client) to prove to SARS that the expenses were genuinely business-related.

    In the past, this deduction was prone to abuse. Consequently, a claim for entertainment expenses is likely to be flagged for investigation by SARS, and taxpayers should not risk this unless they have verified their tax position with a specialist and are certain they are able to prove the expenses claimed are again, genuinely business-related. 

In addition, input VAT cannot be claimed on entertainment expenses, including but certainly not limited to business lunches and dinners; annual functions; and expenses incurred for entertaining clients at restaurants, bars and night clubs.

  • Gifts: Many companies show their appreciation and build relationships with clients and suppliers with corporate gifts that can range from bottles of wine to keyrings. These expenses could be tax deductible as marketing expenses or as cost of sales expenses, but the onus will rest on the taxpayer to prove that these expenses were incurred in the production of income. 

Giving to charities 

  • Donations: Before making a donation, consider that there may be donations tax implications. A company will not incur donations tax for the first R10,000 per annum in donations. However, any amounts over this limit are taxed at a flat rate of 20% on the value of the donation up to R30 million, and at a rate of 25% on donations over and above R30 million. Furthermore, any donations made to a registered PBO (Public Benefit Organisation) are not subject to donations tax, even for amounts over the limits set out above. The PBO must have been approved by SARS – have a professional check.

The deduction may, however, not exceed 10% of the donor’s taxable income during any year of assessment. Should the company (donor) have given more than 10% of taxable income in one year, the excess over 10% can be carried over to the next year.

Staff can also get tax relief on their PAYE through “payroll giving” whereby the employer donates on their behalf up to 5% of remuneration to qualifying section 18A PBOs. The donation relief will be reflected on the employee’s IRP5 at the end of the year.

Ask for professional advice to structure your company’s donations in the most appropriate and tax-efficient manner. You may also require assistance to declare and pay donations tax, as it does not form part of the business’ normal tax returns. Following a donation, you will need to submit a donor declaration (IT144 form) and pay any donations tax owing by the end of the month following the month during which the donation was made.

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How To Get a R1.8m CGT Exclusion When Selling Your Small Business

“The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital… the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy”

John F. Kennedy

Since October 2001 South African tax residents have been liable for capital gains tax (CGT) on the disposal or “deemed disposal” of assets, such as a business or a property. Events that trigger a disposal include a sale, donation, exchange, loss, death and emigration. 

For individuals, the CGT rate is a stiff 18%. No separate registration for CGT is required. Since CGT forms part of the income tax system, a person must simply declare capital gains and capital losses in the annual income tax return. All capital gains and capital losses made on the disposal of assets are subject to CGT unless excluded by specific provisions. 

One of the lesser known of these exclusions offers CGT relief, for individuals older than 55, up to R1.8 million on the disposal of a small business with a market value not exceeding R10 million; or active business assets of a small business; or an interest in a small business.

Start planning for your retirement with this exclusion

The exclusion is ideal for those thinking of selling their small business to retire. Whilst, as we see below, you have to be over 55, or disposing because of retirement, infirmity, ill-health or death to actually take advantage of it, it makes sense for a business owner of any age to start planning upfront to meet the various requirements. 

Of course, pages of conditions apply, and these are described briefly below to help you determine if this exception is applicable to you already, or how it can be applied to your future planning should you dispose of your small business; your shares in it; or the qualifying assets. 

Do you qualify? Take the quiz! 

If you answer yes to all these questions, you may qualify for the R1.8 million CGT exclusion. 

  1. Do you, as an individual, own a small business or a share in a small business?

A small business is defined as one in which the market value of all the assets is less than R10 million. The business liabilities are not included in the calculation. 

The individual may be a sole proprietor; run the business in a partnership; or hold a direct interest relating to ‘active business assets’ and have a shareholding of at least 10% in the company. 

  1. Are you older than 55? Or is the disposal in consequence of ill-health, other infirmity, superannuation or death? 
  1. Will the gain (profit) from selling the assets or business accrue to you personally?
  2. Have you held the business or interest in the business for a continuous period of at least five years?
  1. Have you been substantially involved in the running of the business during the above-mentioned five-year period? 

If, for example, you employ a full-time manager to run the business, the exclusion will not apply.

  1. Is the market value of all assets of the small business (as well as other businesses owned) less than R10 million at the date of disposal? 

The market value of all assets – whether ‘active business assets’ or not – must be included. If you are a sole proprietor of a business, who also owns a rental property, both these assets must be included. If you own more than one small business, the combined assets of all your businesses must be less than R10 million. 

If the business is a partnership, and the business assets of the partnership has a combined market value of more than R10 million, none of the partners qualify for the special CGT exclusion. 

  1. Is each asset eligible for the capital gains exclusion?

Eligibility is determined on an asset-by-asset basis because the exclusion only relates to “active business assets”. These include moveable assets such as furniture and equipment used exclusively for business purposes. 

For immoveable assets like a building, where part is used for personal purposes, the capital gain must be apportioned between business use (exempt) and non-business use (not exempt). Assets generating passive income (investment income, rental, royalties) and financial instruments (bank deposits, loans, options, shares, unit trusts and more) are also not exempt.

  1. Will the capital gain be realised within two years from the date of the first disposal? 

    If you sell the business in stages, you only qualify for the exclusion when the full capital gain is realised at the completion of the sale, and that must be within two years.   
  1. Have you already made use of the exclusion? 

This CGT exclusion is cumulative and limited to R1.8 million during the natural person’s lifetime. If you sell your business this year and claim R800,000 as a capital gains exclusion, you could possibly have R1 million to deduct in the future against the capital gain of another business. Any capital gain above R1.8 million is taxed as per usual. 

Best advice! 

CGT is a very complex area and there are many issues to be considered. 

However, not taking advantage of this exclusion if it applies to you could make a substantial difference to your future plans.   

For example, let’s say you bought shares in a company 7 years ago for R2 million, and have since been actively involved in running the business. You decide to sell your share for R4 million, triggering a capital gain of R2 million. 

Taxed at your marginal rate of 18%, the CGT due would amount to R360,000 (R2 million x 18%). Applying the R1.8-million exclusion, only the remaining R200,000 is taxed at 18%, reducing the CGT due to R36,000.

Take professional advice and speak with your accountant to ensure that you qualify for the maximum benefits while ticking all the compliance boxes. 

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What Auto-Assessed Taxpayers Must Know as the November Deadline Looms

“The hardest thing in the world to understand is the income tax”

Albert Einstein

A year after the first mass auto-assessments were issued by SARS in 2020, many more taxpayers are facing the 2021 tax season deadline of 23 November – just days away!

Read on to find out what has changed since last year, what is still the same and important to know, and why you need to contact your accountant before accepting or editing a return/auto-assessment result. 

What’s changed since auto assessments were introduced last year?

  • SARS expanded its auto assessment features to more than three million taxpayers, after auto assessing more than 83% of taxpayers last year.
  • Engagements with taxpayers this year will be through SARS’s various digital platforms:
    • The SMS channel (47277) is a new free self-help SMS service for taxpayers to, for example, request tax numbers or check if they need to submit a tax return. 
    • SARS online self-help system at sars.gov.za (click on the “Online Services” icon) for various functions such as requesting Tax Reference Numbers or uploading supporting documents. 
    • Chatbot “Lwazi” on eFiling and MobiApp, for answers to tax-related questions and requesting information such as a Statement of Account, or an Audit or Refund Status.
    • Video or telephonic appointment with a SARS official – eBookings can be made via the SMS channel; the “Book an appointment” icon on www.sars.gov.za (halfway down the Home Page on the left); or via the toll-free number 0800 00 7277 (select “0” to make an eBooking).
  • In September, SARS confirmed that a once-off penalty will be imposed for late submission of Personal Income Tax returns for taxpayers who respond to the auto assessment after SARS has issued an “estimated assessment”. 

What is still important to know? 

  • If you have been auto-assessed, you will receive an SMS from SARS. If you have not received an auto-assessment SMS, it does not mean you don’t have to file a tax return. Non-provisional taxpayers who were not auto-assessed must still file their returns by 23 November, either digitally using eFiling or the SARS MobiApp or by making a booking at a branch.
  • The auto assessment is not an assessment for the purposes of the Tax Administration Act, but a notice for individual taxpayers to access their eFiling profile to review the ‘proposed tax return’ that has been pre-populated or partially completed by SARS.
  • Accepting SARS’ ‘proposal’ will result in this return prepared by SARS being submitted on behalf of taxpayer and an ITA34 assessment being issued. 
  • Choosing the ‘Edit’ option will populate a detailed tax return that can be edited and filed as normal. An ITA34 assessment will be issued based on this return. 
  • Failing to either accept or edit an auto-assessment result by 23 November 2021 will result in SARS raising an ‘estimated assessment’. This is a final assessment of the information about a taxpayer available to SARS and cannot be changed – if the information is incorrect, the dispute process will have to be followed.
      
  • SARS says at least 70% of taxpayers will receive refunds due within 72 hours if nothing else is required. SARS also says taxpayers can expect very specific requests where outstanding information is holding up an assessment. 
  • Whether you have received an auto assessment or not, and whether you have accepted it or not, it is best to contact your accountant – to ensure you cover yourself against any possible mistakes.

7 reasons to contact your accountant before you do anything!

  1. SARS will never request banking details via email, post or SMS. If you have received an auto assessment SMS, check with your accountant that the communication you received is legitimate.     
  1. Don’t assume that the partially completed auto assessment return must be correct because it was pre-populated by SARS. The third-party data from employers, financial institutions, medical aids and others may be incorrect or outdated, and some information may be missing. Your accountant will help you fulfil your responsibility to check for omissions and mistakes before accepting.
  1. Professional advice will protect you against non-disclosure, which can result in penalties and interest and even criminal prosecution. Omissions could include, for example, income from sources other than reporting third parties like a capital gain, rental income, cryptocurrency, or offshore investments. SARS’ significantly improved abilities to draw taxpayer information from local and international third parties make it easier than ever before for SARS to detect incorrect or undisclosed information.
  1. The auto assessments will not in all cases include all the allowable deductions, such as wear and tear, home office expenses, donations to charities and travel expenses. Your accountant can help ensure that all allowable deductions are included to prevent a larger tax liability than necessary.
  2. Accepting an incorrect or incomplete return, whether by accident, negligence or through ignorance, can even lead to criminal prosecution. Accepting the auto-assessment result will also eliminate your ability to dispute the assessment later. Even if the auto assessment seems right, first check with your accountant. 
  1. Failing to accept or edit an auto assessment result by 23 November will result in penalties – or worse. Taxpayers can be convicted of an imprisonable criminal offence for, among others, failing to submit a return when required to do so; retaining all relevant substantiating records; providing any information requested by SARS; or not disclosing any material information to SARS; even if this is due to negligence or ignorance. 
  1. An average of 12% of returns submitted last year were selected for audit and verification. Both these processes are time-consuming and expensive – your accountant can help ensure you are ready for either audit or verification.
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Letter of Demand from SARS? Handle With Care!

“A senior SARS official may authorise the issue of a notice to a person who holds or owes or will hold or owe any money, including a pension, salary, wage or other remuneration, for or to a taxpayer, requiring the person to pay the money to SARS in satisfaction of the taxpayer’s outstanding tax debt”

Tax Administration Act

For many South African companies – already battered by loadshedding, lockdowns and looting – a letter of demand from SARS could be the last straw. For others it may be the entry point into one of the many scams that use letters of demand pretending to originate from SARS. For others still, it may be a signal that the company’s internal compliance procedures are lacking. And, in two recent court cases (refer below), the manner in which the letter of demand was delivered proved to be an important safeguard for the companies that experienced SARS simply deducting the outstanding tax debt from their bank accounts!

Regardless of the circumstances, any letter of demand from – or seemingly from – SARS should be handled with care!

What a SARS Letter of Demand means 

Among the mechanisms increasingly applied by SARS to increase tax debt collection is the issuing of letters of demand to taxpayers.  

A letter of demand is sent by SARS when a taxpayer has not paid the amount due to SARS by the deadline date as specified in a notice of assessment previously sent to the taxpayer. A letter of demand may also be issued in respect of late, missed or incorrect VAT or PAYE payments. 

These outstanding tax debts may not necessarily be new – or even recent – but can span over a period of years.

It could also be a scam. Realising that many taxpayers panic when receiving such a letter of demand, criminals have seized the opportunity, with numerous scams doing the rounds. See just one example below from SARS’ website –

Example source: SARS

See more examples on the SARS “Scams & Phishing” webpage

These letter of demand scams involve email and SMS communications seemingly from SARS with links to fake websites that scam people into sharing confidential information such as bank account details, which is then used fraudulently.

A letter of demand from SARS could also indicate problems with a company’s internal tax compliance processes, for example, that taxes due are not correctly calculated internally, that incorrect amounts are being paid over to SARS, or that taxes due are being paid late – or not at all.  

It is also possible that the letter of demand could have been issued by SARS erroneously. Perhaps the outstanding amount has already been paid but not correctly allocated, or perhaps the outstanding amount as calculated by SARS is incorrect.   

If a taxpayer fails to respond to the letter of demand within the deadline specified, SARS can legally commence with collection measures. These can include third-party payment appointments enabling the outstanding tax amount to be deducted from a taxpayer’s bank account or income, or assets being attached by the sheriff of the court, or – in the worst-case scenario – the liquidation of a company to recover the debt. 

Among these measures, recovering outstanding tax debts directly from the taxpayer’s bank account is a quick and effective collection tool, but one that can leave taxpayers facing severe financial hardship.  

In this respect, a letter of demand can also be a crucial safeguard for taxpayers. In two recent court cases the courts overturned SARS’ instructions to the respective third-party banking institutions to debit the taxpayers’ bank accounts with the outstanding tax debt and ordered SARS to repay the amounts with interest. 

Pivotal to the taxpayers’ success in both these cases was the fact that in terms of the Tax Administration Act (the “Act”), a letter of demand must be delivered to the taxpayer either through the eFiling system or to the last known physical address at least 10 business days before SARS proceeds with debt collection. The letter of demand must also set out the recovery steps that SARS may take if the tax debt is not paid by the deadline date, as well as the available debt relief mechanisms under the Act.

How to handle a letter of demand

Realising all these various possible scenarios under which a company might receive a letter of demand, business owners and managers will understand the importance of an informed, professional and swift approach.

Firstly, it is crucial to understand what remedies are available to taxpayers facing a letter of demand – 

  1. Where the amount outstanding is undisputed, and the company has sufficient resources, simply paying the full outstanding tax debt within the specified timeframe will prevent SARS from taking further action.
  1. Where the amount outstanding is undisputed, and the company can demonstrate short-term cash flow challenges that prevents the settlement of the tax debt in one payment or by the deadline date specified, application for an instalment payment arrangement can be made.
  1. Where the amount of the tax debt is undisputed, but the company is unable to pay the amount, the company can submit a Compromise of Tax Debt application which can reduce the tax liability to an affordable amount to be paid off over time.
  1. If the company intends to or has submitted a formal dispute and does not have sufficient resources to pay the outstanding amount, it can submit a request for suspension of payment prepared by an accountant or tax practitioner. If approved, the collection of the tax debt is suspended until 10 business days after SARS informed the taxpayer of its decision regarding the dispute.
  1. Taxpayers can apply for settlement of a disputed tax debt in terms of section 146 of the Act to save time and costs.

Secondly, a professional approach remains the best policy. If SARS is approached professionally and timeously, using the correct and legal processes, taxpayers will often find that SARS is willing to both guide and assist. 

It is also helpful to realise that SARS’ debt collection department is a separate business unit, uninvolved with normal tax processes. It will pursue its objective of collecting outstanding tax debts whether these are disputed or not unless a suspension has been granted. The advice and assistance of a qualified accountant or tax practitioner will not only ensure the correct remedy is applied but will also save time and costs.

Thirdly, swift action is essential. While all correspondence received from SARS should be immediately addressed with the assistance of your accountant or tax practitioner, time is of the essence in respect of letters of demand. 

Remember that the “pay-now-argue-later” principle applies to all tax debts, whether or not an objection or appeal has been lodged. Furthermore, a legitimate letter of demand is a warning that SARS will commence with legally allowed collection measures after the specified deadline. Failure to respond to this letter within the specified timeframe, can have dire and expensive consequences. Don’t delay!

What steps you need to take

  1. Ensure that your company information saved on the eFiling platform is accurate and current so urgent communications from SARS, which are sent via the eFiling platform, always reaches the right person. Check also that all email and contact details are correct.
  2. Check your eFiling profile regularly to be sure that you don’t miss any correspondence from SARS.
  3. Establish validity by checking all the details on the letter of demand. Is the letter correctly addressed to the taxpayer? Is the tax number correct? When was the letter issued? Was it delivered via eFiling or to a physical address? 
  4. Check the amount of the tax debt allegedly due to SARS, starting by downloading a Statement of Account from your SARS eFiling profile. Further internal investigation may be required.       
  5. Note the time limit within which to take the next step – SARS usually allows the taxpayer 5 to 10 business days to respond. Failing to respond within this timeframe will allow the collection process to commence legally. 
  6. Get professional assistance in understanding the possible remedies available and to decide on the most appropriate solution.
  7. Engage with SARS within the time limit specified on the letter of demand, in writing and with professional guidance, applying one of the remedies that are legally allowed.  
  8. Follow through on all the required steps for each remedy. For example, it is not sufficient to lodge an objection – a Request for Suspension of Payment must also be submitted to delay debt collection until the objection is finalised.
  9. The winning strategy remains ongoing and verified compliance. Check the Statements of Account for the various tax categories on a regular basis.
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Emergency Tax Relief: Is Your Business Eligible and What Should You Consider?

“SARS will implement these tax relief measures because compliant taxpayers have paid their fair share of tax, making it possible for government to provide such a temporary safety net in a time of extreme difficulty”

SARS

Battered by national lockdowns of varying intensity since March last year, many businesses have been further affected by weeks of looting and riots in July. These cost 330 South Africans their lives, while our country lost about R50 billion in output, with an estimated 50,000 informal traders and 40,000 businesses affected, placing 150,000 jobs at risk.

For some businesses who had managed to survive in an economy that contracted by 7% last year, it was a final blow. In the economic hubs of Gauteng and KwaZulu-Natal, businesses, shops and warehouses were destroyed or shut down. Virtually all businesses across the country – and in neighbouring countries – were impacted by the resulting food, fuel and medical supply shortages, as well as disruption of supply chains when the ports of Durban and Richards Bay were brought to a standstill and the N3 highway was closed.

In response, on 25 July 2021, President Ramaphosa announced emergency tax measures to assist those affected by the riots and looting.

Three tax relief measures offered 

  1. A tax subsidy of up to R750 per month, for four months, per employee earning below R6,500 – 1 August 2021 to 30 November 2021 – under the current Employment Tax Incentive (ETI) for private sector employers. The first extended ETI can be claimed in your August EMP201 (due 7 September). SARS will pay monthly ETI refunds for the four-month period commencing on 13 September, subject to verification or audit steps required. 

2. Deferral of 35% of Pay–As-You-Earn (PAYE) liabilities over the three months – 1 August 2021 to 31 October 2021, without penalties or interest. The first deferment can be claimed on the August 2021 EMP201 return, due 7 September. After 7 November, SARS will determine the four equal payments for the total amount that you have deferred and include it in your monthly Statement of Account. Payments will be made over a four-month period that will commence on 7 December 2021 with the last payment due by 7 March 2022.

3. Deferral of excise duty payments for up to three months for businesses in the alcohol sector. 

Note that this deferral is available immediately.

What are the qualifying criteria?

  • Only tax compliant companies qualify for the emergency tax measures and that means the business:
    • Is registered for all required taxes. 
    • Has no outstanding returns for any taxes it is registered for.
    • Has no outstanding debt for any taxes it is registered for, excluding instalment payment arrangements, compromise of tax debt, and payment of tax suspended pending objection or appeal.
  • The employer must be registered with the South African Revenue Service (SARS) as an employer by 25 June 2021.
  • The employee tax subsidy applies to tax compliant private sector employers with employees earning below R6,500 per month. 
  • PAYE deferrals apply to tax compliant businesses with a gross income of up to R100 million, with a limitation that gross income should not include more than 20% of income derived from specific listed sources. 
  • Excise duty payments deferrals apply to compliant licensees in the alcohol sector that have applied to SARS.

Issues to consider 

  • You are responsible – The law holds an employer personally liable for an amount of tax withheld and not paid to SARS, or which should have been withheld but was not withheld. The employer could also be held criminally liable for failure to withhold and pay PAYE.   
  • SARS’s focus on employers – Just weeks ago SARS announced it has teamed up with the NPA (National Prosecuting Authority of South Africa) to deal with tax non-compliance, initially focussing on non-compliant employers. SARS’ Criminal Investigations Division has already handed over 30 non-compliant employers to the NPA in their new joint venture.   
  • Mistakes are costly – While previously a mistake made by a taxpayer was only a crime when it was done “wilfully and without just cause”, taxpayers can now in certain cases be convicted of an imprisonable criminal offence even if non-compliance was due to negligence or ignorance. If you decide to implement the relief measures, call in professional assistance from your accountant to ensure accuracy and recordkeeping.
  • We’ve been warned Before announcing the details of these emergency tax relief measures, SARS Commissioner Edward Kieswetter made it clear that SARS has the capability to detect and make it costly for those that are non-compliant with their legal obligations and engage in criminal malfeasance. Get a professional opinion to ensure your company qualifies and that the relief is correctly claimed.
  • Expect a verification or audit from SARS – ETI refunds will be subject to any verification or audit steps that may be required. Your accountant can assist you in preparing for the likelihood of verifications and audits, and in successfully completing a verification or audit when selected. 
  • Will you have recovered sufficiently in three months? Three months is a very short time in these unpredictable times. The ability to recover during the grace period is an important consideration: the company’s cash flow will improve initially, but after the three-month deferred payment period, an even higher PAYE liability is due – over the year-end and into the next financial year. Your accountant can help you to carefully project your financial position over the coming months to enable an informed decision.
  • Can you afford the deferred tax repayments? While the lower PAYE payments for the three months of August, September and October will provide short-term cashflow relief, one quarter of the total deferred amount must be paid – on top of the company’s normal PAYE obligation for each month between November (due 7 December 2021) and February (due 7 March 2022). If your payment is made late, you will forfeit the benefit of the tax relief for PAYE and SARS will impose penalties and interest on the calculated total payable. It will also create other challenges, such as not being able to obtain a tax clearance certificate required for loan applications and tenders.  

While these tax measures introduced for employers may be a lifeline for some companies to survive, all businesses are well advised to call on the advice and assistance of their accountant, both when carefully considering the decision to take up this tax relief and in claiming the tax relief.

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Home Office Expenses: To Claim or Not to Claim?

We would simply ask taxpayers to consider carefully the longer-term implication of defining an area in their primary residence as a home office for tax purposes”

Edward Kieswetter – SARS Commissioner

“All employers should allow their employees to work from home unless it is absolutely necessary for them to perform work on-site” was among the government’s directives issued on 28 June, when South Africa was placed under an adjusted Alert Level 4 lockdown in response to the third wave of Covid-19 infections in the country. 

While working from home has certainly become a more familiar feature of the employment landscape and is predicted to remain so long after all lockdown restrictions are lifted, it has been some time since employees were actually compelled to work from home wherever possible. 

This, along with the opening of the 2021 tax season on 1 July, refocussed attention on the issue of home office expenses and how these should be treated for an optimal tax outcome for employees and employers. 

Just days later after the lockdown commenced, SARS announced that it had published an update on its website in relation to home office expenses to provide “additional clarity for individual taxpayers who may be considering submitting claims for home office expenses in their income tax returns that can now be filed for the 2021 tax year” from 1 March 2020 to 28 February 2021. 

What has changed? 

SARS notes that expenses in maintaining a home office have been a controversial issue since the 1968 judgment KBI v Van der Walt. The legislative provision relating to home office expenditure that a taxpayer may claim, section 23(b) of the Income Tax Act, has therefore been periodically amended since 1990.  

However, since March 2020, things have changes drastically due to Covid-19, and more employees have been compelled to spend more time than ever before working from home. It is in any case likely to be a permanent feature of the employment landscape in the future. Employees have been accommodating this shift by setting up home offices and bearing certain expenses to create and maintain a proper working environment at home.

Despite the substantial change in the employment landscape, SARS emphasized in their media statement that “there have been no changes to the legislation in relation to a ‘home office’… the legal requirements remain the same as before the Covid-19 pandemic.” 

However, in May, SARS also issued a 17-page draft Interpretation Note 28 (IN28) on what taxpayers who are “in employment or holding an office” can deduct for home office expenses, providing various examples of when expenses will not be permitted. These include, for example, working at a dining room table instead of in a dedicated room; or also using the home office space for purposes other than working.   

Media comments have suggested that the draft interpretations are narrow, excluding most employees from claiming a tax deduction; do not adequately address tax implications arising from the increase in home office use due to Covid-19; and do not align with National Treasury’s intention, expressed in the February Budget Review, to investigate current travel and home office allowances for “efficacy, equity in application, simplicity of use, certainty for taxpayers and compatibility with environmental objectives”.

While the Draft Interpretation is under discussion, SARS says that the legal requirements set out in the Income Tax Act remain the same as before the Covid-19 pandemic. 

6 questions to determine if you are eligible to claim home office expenses 

SARS’ “Home Offices Expenses Questionnaire” here says that answering ‘Yes’ to all 6 questions below confirms eligibility to claim home office expenses. 

  1. Did you receive remuneration for duties performed mainly (more than 50%) in part of your private premises occupied for purposes of that remuneration?
  2. Do you have a dedicated room in your premises?
  3. Is this room specifically equipped for the purpose of that remuneration?
  4. Is this room regularly used for purposes of performing the duties in relation to that remuneration? 
  5. Is this room exclusively used for purposes of performing the duties in relation to that remuneration?
  6. Did you incur home office expenditure relating to your domestic premises?

Just please read the “Pitfalls” section below before making any decisions!

What can and cannot be claimed? 

For a home office expense to be deductible, the requirements of the Income Tax Act must be met and its prohibitions must not apply. 

Typically, home office expenditure includes rental of the premises; cost of repairs to the premises; and expenses in connection with the premises.

This means that taxpayers may deduct rental or bond interest on the home and home repairs; municipal rates, electricity and water; wear and tear on office equipment considering differing depreciation rates on computer equipment and office furniture.

In terms of the rental or bond, as well as the municipal rates and utilities, an apportionment of the costs must be made when claiming. This is typically calculated on a pro-rated basis of floor space i.e. square metre basis of the home office in relation to the total area of the home. 

Employees may also incur numerous costs in running a home office such as telephones and cell phones, Internet connectivity, equipment repairs, stationery, and cleaning.  

Beware the pitfalls 

  1. The specific wording, narrow interpretations and possible changes to home office expenses could place taxpayers at risk. For example, to claim home office expenses, the home office must be a room “dedicated” to work where duties are performed “mainly’ or “more than 50% of the time”, and it must also be “specifically equipped” and “regularly” and “exclusively” used for work. Wording such as this, along with possible changes and the narrow interpretations suggested in the most recent draft Interpretation Note (IN28) should prompt employers and employees to take professional advice before deciding to claim a tax deduction in respect of home office expenses.    
  1. The burden of proof lies with you as taxpayer. Employees should be provided with written confirmation regarding the specific timeframe they are required to work from home. In addition, employees should keep a running spreadsheet of hours and days worked at home covering the entire tax year, or consider other solutions such as keyboard tracking software, stealth monitoring or mobile time clocking solutions.
  1. Home office expenses must be linked to employment use and must be verifiable. Be sure to retain invoices and statements of all home office expenses. Where expenses are not specified as deductible in the Income Tax Act, opting for reimbursement by your employer may be a more efficient solution.
  2. The possible impact on capital gains tax. SARS warns that where the home office is on taxpayer-owned property, formally defining part of a primary residence as a home office will ‘most likely have an adverse impact on a future capital gains determination’. This is because the home office area will, on a pro-rated basis, be excluded from the primary residence exclusion of R2 million on disposal of the residence. Careful consideration should therefore be given before a claim for home office expenses is made and it is essential to get professional advice on this aspect.
  1. Increased risk of being audited. SARS warns that while all claims for home office expenses may be subject to further verification or audit, there is a high likelihood that a taxpayer who claims home office expenses for the first time will be selected for verification or audit.

Cost vs Benefit Analysis 

Given all the potential pitfalls, it is important for employers and employees to consider whether the cost, risk and administration involved in claiming home office expenses are worth the benefit received in terms of the total tax deduction.

Other options should also be explored to ensure the optimal tax outcome for employers and employees. For example, should the employer provide the employee with an allowance per month to cover home office expenses, such an allowance will be taxed as part of their remuneration. Where the employer reimburses such expenses, however, it would not be taxable in the employee’s hands. Similarly, if the employer reimburses expenses for the purchase of home office equipment, such equipment is then the property of the employer and would also not be taxable in the employee’s hands. Employers should consider a reimbursement policy to clarify the treatment and maximum reimbursement amounts and are strongly advised to obtain advice from their accountant when making these decisions. 

SARS itself notes that taxpayers may find that working from home resulted in savings on expenses they would otherwise have incurred, like transport, wear and tear on vehicles and so forth. These savings, together with the loss of part of the capital gains exclusion, may outweigh the benefit of a claim for home office expenses.

“We understand that many employers, and employees alike, are grappling with establishing a new normal,” says SARS Commissioner Edward Kieswetter. “We would simply ask taxpayers to consider carefully the longer-term implication of defining an area in their primary residence as a home office for tax purposes. It may be more prudent to wait and establish a more sustainable rhythm before making the decision” (Emphasis supplied).

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Audit Your Employee Taxes, Before SARS Does

“One of our strategic objectives is to make it easy for taxpayers to comply with their tax obligations, and hard and costly for those who willfully do not comply”

Edward Kieswetter, SARS Commissioner

Earlier this year, SARS and the NPA (National Prosecuting Authority of South Africa) announced that they are joining up to deal with tax non-compliance, initially focussing on employers. 

Employers under intensified scrutiny 

While this enhanced collaboration covers a number of aspects, the immediate focus will be non-compliance by employers, who deduct employee taxes and levies, never turn those taxes over to SARS, and do not file their returns when required, as well as “other general corrupt activities”. 


To enable the collaboration, the Criminal Investigations Division within SARS will allocate dedicated capacity and work closely with the NPA in its Specialised Tax Units (STUs). Solid cases ready for prosecution will be prepared in a coordinated manner across the country. The SARS regional leaders in criminal investigations and the NPA regional directors of the STUs will enrol these cases on a specific date for each region.

Why audit your employees’ tax? 

The Tax Administration Act holds an employer liable for an amount of tax withheld and not paid to SARS, or which should have been withheld but was not withheld. The employer could also be held criminally liable for failure to withhold and pay PAYE. 

SARS’ Criminal Investigations Division has already handed over 30 non-compliant employers to the NPA in their new joint venture and are working to identify and prioritise more cases.

They are further enabled by recent changes to the tax laws that effectively lowered the threshold for criminally prosecuting taxpayers through removing the requirement to prove that the taxpayer’s conduct was “wilful and without just cause” for selected offences. While previously a mistake made by a taxpayer was only a crime when it was done “wilfully and without just cause”, taxpayers can now in certain cases be convicted of an imprisonable criminal offence even if non-compliance was due to negligence or ignorance. Offenses include, among others, failure to submit a return when required to do so; failure to retain all relevant substantiating records; failure to provide any information requested by SARS; or failure to disclose any material information to SARS. 

This, along with SARS’ and the NPA’s intensified focus on employers, as well as SARS’ increased abilities to draw taxpayer information from third parties, make an employee tax audit a necessity. 

It also protects employees. Employees’ tax is not a separate form of tax, but rather an amount that the employer is obliged to withhold in respect of the employee’s liability for normal tax. On assessment annually, the employee’s tax withheld is set off against the employee’s liability for normal tax. The correct calculations and deductions will certainly help protect employees from unexpected surprises on assessment, and will also ensure that the employer’s processes are not the cause of disputes or delays when, for example, an employee needs to claim UIF.  

How to audit your employees’ tax 

  • An employee tax audit is a deliberate process undertaken to review payroll taxes and records, with the intention of ensuring accuracy to protect your employees as well as to comply with regulations. It is also an important part of a payroll audit.
  • Verify the employee information on your payroll: Do you have the required information for each employee in respect of identifying and calculating the applicable taxes, rebates and more? For example, the employment relationship affects the classification of an employee, which in turn determines the tax rate that must be applied. 
  • Verify and review the remuneration for each employee: Remuneration, whether in cash or otherwise, includes any wage, salary, overtime, bonus, voluntary award, leave encashment, fee, stipend, commission, gratuity, pension, emolument, annuity, allowance, lump sum benefit payment, director’s remuneration, etc. Can the remuneration be structured more tax efficiently for the employee? 
  • Verify that the correct taxes and levies are deducted: 
  • Pay As You Earn (PAYE) must be withheld from the remuneration paid to employees, subject to thresholds and rebates.
  • Unemployment Insurance Fund (UIF) contributions, for which the monthly threshold recently (1 March) increased from a maximum of R14,872 pm (R178,464 pa) to R17,712 pm (R212,544 pa).
  • Skills Development Levy (SDL) is payable by employers with a payroll of more than R500,000 pa. 
  • Employment Tax Incentive (ETI) rebates incentivise employers to employ young workers – if your company has taken advantage of the ETI rebate, these tax deductions should be verified in respect of each qualifying employee. 
  • Verify that the correct amounts are deducted: Both over deductions and under deductions as well as any corrections to submitted returns will certainly flag your employee tax account at SARS for audit.
  • Make sure the correct tax rate is used to withhold the correct PAYE taxes from each employee’s wages, verifying that all tax thresholds, rebates, directives, tax credits, deductions, benefits, exemptions, contributions and allowances have been considered and correctly applied where appropriate. 
  • UIF is calculated at a rate of 2% of remuneration (1% employee and 1% employer contribution).
  • SDL is calculated at a rate of 1% of total remuneration paid to employees, excluding certain payments such as reimbursements or severance benefits.
  • The ETI allows “eligible employers” of “qualifying employees”, subject to specific criteria, to claim a rebate with a maximum value of R1,000 per month for employees earning up to R4,500 per month, with the rebate tapering to zero at the maximum monthly remuneration of R6,500. The ETI was recently extended to February 2029 and should be considered with the assistance and advice of your accountant. Employers will be able to claim the incentive for a 24 qualifying month period for all employees who qualify.
  • Verify that the deducted amounts are correctly declared and remitted: The employees’ taxes and levies deducted from an employee’s remuneration must be declared on the Monthly Employer Declaration (EMP201) return and paid to SARS within seven days after the month end, or the previous working day if the seventh day is on a weekend or holiday. Late filing is subject to newly-introduced penalties, and late payments are subject to an immediate penalty of 10% and interest at the prescribed rate will be charged monthly on the outstanding amount. 
  • Employment Taxes Validation – IRP5 Certificates: An employer must furnish employees from whom employees’ tax was deducted with an IRP5 certificate, within the prescribed tax period. From the 2020 year of assessment, SARS is performing tax calculations on the IRP5/IT3(a) certificates. Where the incorrect amount of tax was deducted from the employee, a letter will be issued to the employer. 
  • Verify compliant employee record keeping: Employers must keep a number of specified records for each employee for a period of five (5) years and make them available for scrutiny by the Commissioner.
  • Schedule regular employees’ tax audits: Ideally, employers should conduct a payroll and employees’ tax audit on a routine basis and certainly any time there are changes in the tax regime, the labour laws, in the business or in its internal processes. 
  • Professional processes: Much of a business’ employee tax risk can be mitigated by putting professional processes in place. Invest in SARS-compliant automated payroll software with training for the relevant staff members and regular legal updates; or outsource your payroll and its taxes to professionals such as your accountant or even a payroll specialist. 
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What You Should Know About Airbnb and Tax

“All forms of rental income must be declared to SARS … We are … determined to make it hard and costly for non-compliant taxpayers not willing to meet their obligations. We are working hard to improve system capabilities, in order to detect those taxpayers who do not comply by using data to identify risk”

Extracts from SARS media statement 11 March 2021. 

The Basics

Airbnb is an online app which allows homeowners to rent out their property to travellers on an ad hoc basis with very little admin from their side. Users of the app simply search and select properties that have been listed in the area they are visiting, then pay on the Airbnb platform. The owner is responsible simply for letting them in and making sure the property is as described in terms of quality and cleanliness. In return for this service Airbnb takes a percentage of the total rental charged as commission.

It’s a simple and clean system that to date has been extremely difficult for SARS to track. The recent announcement by the revenue service that it was aware owners were not declaring this income and thus underpaying owed taxes and that they are determined to tax this income does, however, suggest that things are about to change. 

“We are determined to make it hard and costly for non-compliant taxpayers not willing to meet their obligations. We are working hard to improve system capabilities, in order to detect those taxpayers who do not comply by using data to identify risk,” SARS announced.

This in itself poses a problem for SARS as while it’s easy to see just who is renting their property out on Airbnb by looking at adverts and cross-referencing them with ownership records, it is more difficult to see just how much time was spent by guests in the property. Nonetheless, the announcement does seem to indicate a determination by SARS to put a stop to tax avoidance in this area and this could spell trouble for those who have been letting out their properties, most likely in the way of audits. But just what is owed by owners, and how would they correct this situation?

Income tax returns and registering for VAT

There is no doubt income derived from letting a property out on Airbnb must be declared on your income tax return. As SARS made clear, “This is the same principle that applies to any person who has rental income from letting out their property as a homeowner, placing them under the same obligation to declare such rental income to SARS”. 

According to registered CA(SA) and Group Financial Controller for SYSPRO Louise Buchanan, “A property owner who hosts fee-paying guests like in the case of Airbnb, has to declare the rental income on their income tax return as it is considered gross income.” She warns that in addition to this, any property owner earning more than R1 million within a 12 month period would also need to register as a VAT vendor and charge VAT 15% on rental income. 

What about deductions?

As always, any income that comes with costs can be reduced by a portion or percentage of certain of those costs allowable for tax purposes. 

According to Buchanan only expenses which arise in relation to the production of rental income can be claimed as a deduction. 

“These include levies, rates and taxes, electricity and water, home-owner’s insurance, advertising, bond interest and agent’s fees,” she says, cautioning that, “If only a portion of a property is rented out, then only pro-rata expenses related to that portion are deductible”. 

What about Airbnb themselves?

Airbnb has a notice on its site which states that “In areas that Airbnb has made agreements with governments to collect and remit local taxes on behalf of hosts, Airbnb calculates these taxes and collects them from guests at the time of booking. Airbnb then remits collected taxes to the applicable tax authority on the hosts’ behalf.” 

This can sometimes be confusing for the home-owner who may believe that tax has been paid on their behalf already. Unfortunately, South Africa is not one of the areas in which Airbnb has made an agreement with government to collect and remit taxes on its behalf. Owners with properties in other areas are, however, able to take advantage of this fact, and a full list of these areas can be found here.

What to do if you didn’t declare Airbnb income and owe back taxes

Homeowners who have not been paying taxes on their Airbnb income are still liable for those taxes and SARS has made it abundantly clear that they aim to find and crackdown on non-compliant owners.

“Taxpayers are reminded that failure to comply with their tax obligations may result in administrative penalties being imposed in addition to interest, or even criminal action being taken against them,” the revenue service said.

Buchanan explains that in practice what this means is that administrative penalties are likely to be imposed along with interest, but has also warned that it would not be unheard of for criminal action to also be taken against a defaulter. She therefore urges all Airbnb owners who may be in default to consider declaring their Airbnb income through the SARS voluntary disclosure programme, which offers more favourable penalty amounts and a significantly reduced chance of criminal procedures being instated.

If you are an Airbnb owner who has not declared this income, it would be wise to speak to an accountant like us to evaluate just how much you might owe in back taxes and to try clear up the situation before you are the subject of a tax audit.

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Tax Filing Season 2021 Opened 1 July: Start Preparing!

“The secret to getting ahead is getting started.”

Mark Twain

To avoid the last-minute rush, the risk of errors and omissions, and the cost of late submissions, penalties and audits, there is no better time to get ahead on your company and individual tax returns than the day the 2021 tax season opens. 

What applies to your business – and to you? 

The tax season for filing the 2020/2021 returns for both your individual tax and your company’s tax has now opened.  

Have a look at the table below for details –

There were no changes to the corporate income tax (CIT) at 28%, or to the rate of tax on trusts at 45%. The Small Business Corporations (SBC) tax rate also remains unchanged, although the threshold is up to R83,100 from R79,000 last year (it increases for the 2021/2022 tax year to R87,300). 

Personal tax rates still start at 18% for those earning up to R205,900 pa (up from R195,850 in the 2019/2020 tax year) and up to 45% on income exceeding R1,577,300 (up from R1,500,000 in the 2019/2020 tax year). 

The changes to the tax thresholds and rebates for individuals are summarised in the table below –

Capital Gains tax and its specific exclusions also remain unchanged from last year, ranging from 18% for individuals and special trusts, 22.4% for companies and 36% for other trusts.  

Given these tax rates, it is imperative to ensure you and your business is taking advantage of every tax deduction possible! 

Take advantage of familiar and new deductions

The basic tax deductions for businesses and individuals are tax-deductible expenses, defined as any expense incurred in the carrying on of any trade, including employment income. However, there are many terms and conditions dictating when and how these deductions may be claimed, which makes it imperative to take professional tax advice.

For example, for the 2021 tax year with its numerous Covid-19 lockdowns, certain expenditure incurred while working from home can be included in the deductions. The expenses are calculated as a pro rata amount of home expenses such as rates and taxes, electricity, repairs and insurance. However, these expenses can’t be of a capital nature and no deduction can be claimed for any equipment provided by an employer without charge, or for anything that is reimbursed. Also bear in mind that claiming a tax deduction for home office use can impact on capital gains tax when you sell your home.

Red flags: what has changed since last tax season? 

  • Building on last year’s first auto-assessments, SARS says that – starting in July – significantly more individual taxpayers will be auto-assessed this year. If you are selected to be auto-assessed, SARS will send you an SMS. Before you accept an auto-assessment, be sure to check with your accountant that all the relevant information and declarations have been correctly included, ranging from subsistence and travelling allowances and advances to fringe benefits; and that deductions for retirement fund contributions, medical and disability expenses and even donations have been correctly applied. 
  • SARS has significantly improved its abilities to draw taxpayer information from third parties, including employers, financial institutions, medical schemes, retirement annuity fund administrators and other third-party data providers, making it easier than ever before for SARS to detect incorrect or undisclosed information. 
  • SARS has notified certain taxpayers that they are under specific scrutiny, notably ‘wealthy’ taxpayers and those with ‘complicated’ tax structures, as well as taxpayers who hold offshore assets such as crypto currencies and those who receive rental income, including from Airbnb rentals. With regard to companies, SARS states: “CIT filing compliance is currently an issue for SARS and as SARS closes in on non-compliance by companies it urges companies to note that it is compulsory for registered companies that are required to file a return to do so on time and complete in all respects”.
  • The consequences of not submitting your tax return correctly by the SARS deadline are extensive. 
  • SARS will levy a non-compliance penalty for each month that an individual’s return is outstanding. This can range from R250 up to R16,000 a month for each month that the non-compliance continues, up to a maximum of 35 months. 
  • Failure to submit the return(s) for a company within the prescribed period will result in administrative penalties being imposed on a monthly basis per outstanding return and could result in a summons and/or criminal prosecution, which upon conviction is subject to a fine or to imprisonment for a period of up to two years. 
  • While previously a mistake made by a taxpayer was only a crime when it was done “wilfully and without just cause”, things have changed. Now, there are two categories of offence. One requires wilfulness, but the other doesn’t. In that second category, even if non-compliance was due to negligence or ignorance, taxpayers can be convicted of an imprisonable criminal offence for, among others; failure to submit a return when required to do so, to retain all relevant substantiating records; to provide any information requested by SARS; or failure to disclose any material information to SARS. 

What to do now 

  1. Don’t delay! The deadline dates are deceptively distant. However, the 23rd of November is less than 5 months away, and 31 January is just a few short weeks later. Immediately starting to prepare to lodge your tax returns will ensure that there is time to attend to any potential problems, such as finding documents, obtaining third party information or getting professional advice. 
  2. Ensure that all sources of income are included and that all rebates and amounts allowed to be deducted or set off are also factored in, including provisional payments already made and any claims for COVID-19 tax relief.   
  3. Keep accurate records of all the calculations and source documents used as SARS may ask for these documents to be verified and/or for the calculations to be justified. 
  4. Get professional assistance!
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Got Cryptocurrency? Here’s How Much SARS Wants…

“The future of money is digital currency”

Bill Gates, Co-founder of Microsoft

Cryptocurrencies have been around for over a decade, with the first and most famous one – Bitcoin – launched in 2009. Since then, many other cryptocurrencies have been created and supported in the market, including for example Ethereum, Litecoin, Dogecoin and Bitcoin Cash. 

Regulators have been slow in responding to the rapid fintech developments behind cryptocurrencies. However, further cryptocurrency regulation is certainly on its way, and the Intergovernmental Fintech Working Group (IFWG), a group of South African financial sector regulators, published a policy position paper on crypto assets to provide specific recommendations for the development of a regulatory framework.

In the meantime, however, many cryptocurrency owners may be unaware that their cryptocurrency gains will most certainly be taxable by SARS – and in the year of assessment in which income or gains are received by or accrue to the taxpayer – not only if or when the cryptocurrency is withdrawn and converted into legal tender. 

What’s the sudden spotlight on cryptocurrencies? 

A number of recent developments have catapulted cryptocurrencies into the spotlight. 

The first was the Bitcoin boom over the last year. Having maintained a price under $10,000 for years, excluding two peaks in December 2017 ($13,000) and June 2019 ($12,000), Bitcoin’s price started to skyrocket in September 2020 as big-name companies such as PayPal, Mastercard and Square began to accept it. 

Early in 2021, the price of Bitcoin reached a staggering $60,000, following Tesla’s announcement that it had acquired $1.5 billion worth of Bitcoin and the public listing of US cryptocurrency platform Coinbase Global on the Nasdaq. In February, Bitcoin breached the $1 trillion market capitalisation mark.

Local Bitcoin investors would have seen the price of their bitcoin jump from under R100,000 in March 2020 to just under R430,000 at the end of 2020 to almost R1 million in April 2021, doubling in value in just a few months.

Many South Africans started investing in cryptocurrencies during the boom, with a global crypto platform operating locally saying it had registered more than a million new cryptocurrency accounts in under two months, South Africa being in the top four highest growth locations. 

SARS’ scrutiny not surprising 

It is not surprising that these substantial gains and the fast-growing number of South African investors in cryptocurrencies have come under specific scrutiny from SARS. It presents an opportunity to collect substantial taxes from a previously untapped source at a time when all other options for tax increases and new taxes have been exhausted. 

In addition, earlier this year, R3 billion was allocated to SARS in the Budget to improve its ability to track undeclared assets and income, including a dedicated unit to uncover “undisclosed offshore assets, including crypto-assets such as bitcoin” and other cryptocurrencies.  

Unfortunately, very few South Africans holding cryptocurrency are likely to be aware of the tax liability they could be facing. 

So, while cryptocurrency platforms are not yet legally required to report on their clients and while SARS boosts its tracking abilities, our tax authority has simply begun asking for information on crypto transactions in audit letters issued to taxpayers – even to taxpayers that have never traded in cryptocurrencies. 

The information requested includes the purpose for which the taxpayers purchased cryptocurrency, as well as bank statements, and a letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period.

Thanks to recent legislative changes that have made it a criminal offence for a taxpayer to willfully fail to submit a document or information as requested by SARS, or to make a false statement to SARS, non-compliant taxpayers could be liable to a fine or imprisonment for up to two years – or up to five years for attempted tax evasion or obtaining an undue refund.

SARS’ stance

In 2018 SARS issued a media statement confirming that the existing tax framework and normal tax rules will apply to cryptocurrencies and that affected taxpayers are expected to declare cryptocurrency gains or losses as part of their taxable income.

It said that cryptocurrencies such as Bitcoin are considered by SARS to be “assets of an intangible nature”, and that capital gains tax or normal tax may apply, depending on whether you are investing for the long term or trading actively for short-term gain. SARS will likely consider cryptocurrency-related gains to be revenue in nature and the onus will be on the taxpayer to prove otherwise.

For long-term investors, cryptocurrency is deemed “capital assets” and gains will be taxed at Capital Gains Tax rates – up to 18% for individuals and 22.4% for companies. The purchase price of cryptocurrency is deemed to be the price paid on date of purchase.  

Active trading will ensure your cryptocurrency is considered “trading stock”, with the income “received or accrued” falling under the definition of “gross income” in the Income Tax Act and profits taxed at normal income tax rates, between 18%–45% for individuals and 28% for companies.  

Cryptocurrencies income can be “earned” in various ways, all of which are subject to normal tax.

  1. A cryptocurrency can be obtained by so-called “mining”. According to SARS, until it is sold or exchanged for cash, cryptocurrency obtained in this way is held as “trading stock” that can then be realized through an ordinary cash transaction, or through an exchange transaction.
  1. Cryptocurrency may be received as income by a self-employed independent contractor for performing services; or received as remuneration or wages for services from an employer.  
  1. Cryptocurrency may be accepted as payment for goods or services. Where goods or services are exchanged for cryptocurrencies, such a transaction is deemed to be an exchange transaction and the usual exchange transaction rules apply. 
  1. Investors can exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges, or by private transactions.
  1. If a trade is made between two cryptocurrencies, for example Bitcoin and Ethereum, the profits are also taxable. 

Failure to declare cryptocurrency holdings, income and gains could result in interest, penalties and criminal prosecution.  

What you should do now 

(Remember to get expert advice specific to your circumstances!) 

  • SARS says that the responsibility rests with taxpayers to declare all taxable income in respect of cryptocurrency in the tax year in which it was received or accrued. If you mined cryptocurrency; bought any cryptocurrency; exchanged cryptocurrency for another cryptocurrency; or were in any way paid in cryptocurrency, it must be declared.
  • As with other asset classes, it is important to understand cryptocurrency investments and the attendant tax obligations, and to plan accordingly. A buy-and-hold strategy is more tax efficient, but professional tax advice is recommended for each individual case. 
  • If you have received a request for information from SARS – whether or not you have traded in cryptocurrency – immediately contact your accountant for professional assistance. 
  • Whether or not you have received communication from SARS, if you have not disclosed cryptocurrency holdings, income gains and losses, contact your accountant for specialist tax advice. 
  • Keep records of all transactions – according to SARS conventional receipts and/or invoices are acceptable proof of purchase and sale price. 
  • Use software to track crypto transactions – cryptocurrency platforms do not provide SARS compliant tax certificates such as the IT3c provided by financial services institutions for tax returns. 
  • Declare cryptocurrency holdings, income, gains and losses correctly –
    • SARS has already included questions about cryptocurrency investments in the capital gains tax portion of tax returns;
    • The income or market value thereof forms part of total taxable income in respect of the year of assessment on a provisional tax return (IRP6);
    • Taxable income in the source code or tax return container field provided on the ITR12 form.
  • Individuals can make use of the annual Capital Gains Tax exclusion of R40,000. 
  • Claim deductions – deductions against cryptocurrency income are allowed if they meet the requirements of the Income Tax Act, including whether expenditure is incurred in the production of income or for trade purposes – for example costs relating to computers, servers, electricity and internet service provider charges.
  • Offset losses – losses on cryptocurrency bought as investments will count as capital losses. However, it can only be deducted from capital gains. If there are no capital gains to deduct losses from, the losses can be carried over to the next tax year. You will be well advised to obtain expert tax guidance in this regard. 

The risks and consequences of willfully or negligently failing to make full and true declarations to SARS, or to submit documents or information requested by SARS are now substantial, so ask us at Emma Pardoe Chartered Accountant for advice specific to your circumstances!

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A Basic Guide to PAYE and Four Common Mistakes

“The point to remember is that what the government gives it must first take away”

John S. Coleman

If it weren’t for the PAYE system, which forces employees to pay taxes as they earn their money, each of us would be liable for a lump sum payment of between 18% and 45% of our total monthly earnings at the end of each tax year. Pay As You Earn (PAYE) requires that employers deduct money from their employees’ earnings as they earn it, and pay this money over to SARS on the employees’ behalf.

The Basics

To calculate PAYE an employer should multiply an employee’s taxable earnings (which include any fringe benefits such as Disability Benefit Contributions etc.) by 52 weeks, 26 weeks or 12 months (depending on how often they get paid) to get an annual amount. This annual sum is then cross-referenced against the SARS tax tables to calculate annual tax. This is then divided again by the same work period to get the monthly PAYE tax which is then withheld, displayed on your IRP5 and paid over to SARS.

Example

  1.  Regular monthly income = R10,000.
  2. Annual equivalent = R10,000 x 12 = R120,000.
  3. Tax calculated on R120,000 as per tax tables = R5,886.
  4. PAYE payable on regular monthly income = R5,886/12 = R490.50 p.m.

In cases where an employer pays certain things like medical aid, pension fund, income protection and/or retirement annuity fund contributions on an employee’s behalf, the employer must deduct these costs from the employee’s earnings and take these deductions/credits into account when calculating PAYE and making payment to SARS.  This is where problems begin to creep into the system.


Four Common Problems

  1. Travel Costs

Travel costs are a common area of concern for SARS as they can be miscalculated extremely easily. To determine the portion of the travel allowance that should be included in the calculation of an employee’s taxable income, so as to determine the PAYE, the employer is required to implement an 80/20 rule. Either 80% of their mileage is for business purposes, and the remaining 20% of the allowance is subject to tax. Or, only 20% of their travel is business related, and the remaining 80% of the allowance must be taxed. To determine the percentage to be included in taxable income, accurate logbooks must be provided by employees so that the appropriate 80/20 rule can be strictly adhered to. 

Choosing the wrong rate here can expose an employee to substantially more tax than they should be paying. 

  1. Disability Benefit Contributions

Prior to 1 March 2015 Disability Benefit Contributions could be deducted tax free from an employee’s salary thereby reducing their PAYE contribution. Tax was then charged on the pay-out that the employee received in the event of a disability. This changed in March of that year, however, and now the Disability Benefit Contributions are no longer tax deductible and must be counted as being part of the employee’s fringe benefits. The final Disability pay-outs are, fortunately, tax free. 

  1. Retirement payments

Retirement payments give rise to another common error in the calculation of PAYE, mainly due to the fact that people are unaware that the system changed, and they are still implementing the old system. As of 1 March 2016, SARS now considers all company contributions to an employee’s retirement and risk benefits as a fringe benefit which should be taxed.

There are, however, instances in which a pension fund contribution may be tax deductible. This depends primarily on whether the pension fund is “approved” or “unapproved”. Whether a retirement benefit is “approved” or “unapproved” is determined by the way its associated fund is administered as well as the rules of the fund. The broker who administers the fund will be able to tell you whether it is approved or unapproved and it will then be easier to work out just how to treat those deductions for PAYE.

  1. Partial tax year

Because PAYE taxes are calculated on a projected annual earning, those employees who work only part of a year are liable to benefit from a rebate. Effectively a person earning R30 000 a month would pay monthly PAYE based on an annual earning of R360 000 a year. If they only work for six months of that tax year they should then have only been charged for an annual tax earning of R180 000 and will be deserving of a rebate for the six months where they paid too much.

Speak to us at Emma Pardoe Chartered Accountant (SA) for detailed advice. 

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Selected for SARS Verification or Audit? Here’s What to Expect… and What to Do

“Is there a phrase in the English language more fraught with menace than a tax audit?”

Erica Jong, American novelist

A number of recent tax developments strongly indicate that taxpayers will face even more intense scrutiny from SARS in this new tax year. Most recently, an additional R3 billion was allocated to SARS in the 2021 Budget Speech “to improve technology, data and machine learning capability and upskill SARS officials to improve the efficiency and effectiveness of SARS”. This will include expanding specialised audit and investigation skills and establishing another specialised audit unit for investigations into the tax affairs of high net worth individuals with highly complex financial structures, which will likely lead to in-depth lifestyle audits.

Two ways in which SARS enforces compliance are through verifications and audits, both of which can now be expected to increase. 

Being selected for a verification or audit entails significant risk to a taxpayer, whether individual or corporate. In addition to the time, cost and effort to collate the information, documents and clarifications required, a verification or audit can lead to the levying of understatement penalties varying from 0 – 200% where an understatement occurred, and even harsher penalties are reserved for ‘obstructive’ taxpayers or culpable repeat offenders.

What is SARS verification? 

A verification involves the comparison of the information declared on the return to the taxpayer’s financial and accounting records and other supporting documents. 

The purpose of a verification is to ensure that a declaration or return fairly and accurately represents a taxpayer’s tax position.


What is the SARS verification process?  

  1. SARS sends notification via an official letter.
  1. SARS’ letter will require you to either submit the requested supporting documents via eFiling or at a SARS branch or submit a Request For Correction (RFC) within 21 business days.
  1. If you do not respond within 21 business days, a second letter will be issued. If you still do not respond within 21 business days, a SARS official will telephonically request the relevant material within 5 business days. If you have still not complied, SARS may raise an assessment based on information readily available or obtained from a third party.
  1. A letter requesting further relevant material could be issued if the relevant material initially supplied was not sufficient to finalise the verification.
  1. SARS will conclude the verification within 21 business days from the date all required relevant material is received.
  1. If the tax position declared is found to be incorrect given the relevant tax legislation, an assessment will be raised. 
  1. Where no further risk(s) were identified, and no finding was made, a Notification of the finalisation of the verification is sent by SARS.  Where SARS made a finding, a notice of assessment (i.e. an additional or reduced assessment) will be issued.
  1. Where further risk(s) are identified, your return/declaration is then referred for an audit and you will receive a Referral for Audit Letter. 
  1. You can dispute the assessment by lodging an objection within 30 days.

If you were subject to a verification and the verification process has been completed, your tax affairs could still be referred for audit as part of the SARS compliance process.
 

What is a SARS audit?

A SARS audit goes further than a verification to examine the financial and accounting records and/or supporting documents of the taxpayer to determine whether the taxpayer’s tax position has been correctly declared to SARS. Where the taxpayer made no declaration or did not file a return, the audit is an investigation into the taxpayer’s compliance with the provisions of the relevant tax legislation.

By its nature, an audit is more intrusive than a verification and the scope could be extensive.

What is the SARS audit process?  

  1. A formal Notification of Audit is issued to the taxpayer by a specific auditor, indicating the initial scope of the audit.
  1. Relevant material or supporting documents requested in the Notification or in a further Notification will differ depending on the tax type and scope of the audit and must be submitted to SARS within 21 business days.
  1. Requested relevant material can be uploaded via eFiling, or can be collected or delivered. Arrangements can also be made for an Electronic Forensic Specialist to download the material from your computer systems or for a field audit. The SARS Auditor will issue an Authorisation Letter for a field audit. 
  1. SARS can request additional or further relevant material throughout the audit. If not submitted, SARS will raise an assessment based on information readily available or obtained from a third party.
  1. Progress reports of the stage of the audit should be issued at intervals of 90 calendar days from the date of the Notification of Audit. 
  1. While SARS undertakes to conclude an audit within 90 business days after all required relevant material is received, an audit could take anything from 30 business days to 12 months, or longer, depending on the complexity, the volumes of transactions and the taxpayer’s co-operation. 
  1. Where potential adjustments are identified, SARS will issue an Audit Findings Letter indicating the grounds for the proposed assessments. Taxpayers will be given a deadline for response, indicating agreement or disagreement and providing evidence. 
  1. If SARS believes revised assessment is still required; or where the taxpayer did not respond, the imposition of understatement penalties is considered, whereafter a revised assessment will be raised.
  1. If the tax position is found to be incorrect, SARS will provide a Finalisation of Audit Letter detailing the grounds for the assessment (including the amounts) or provide a Finalisation of Audit Letter to conclude the audit where no findings were made.
  1. Taxpayers can dispute the assessment by lodging an objection.

Note that if, in your original submitted return, you anticipated that a refund might be due, the refund will not be paid out while the verification is in progress or during the execution of the audit process.

What to do – and what not to do

  • Stay prepared – Any taxpayer can be selected by SARS, once a declaration or return has been submitted for verification or audit “for the purpose of proper administration of tax”, including on a risk basis. Taxpayers may also be selected for audit on a random or cyclical basis. Even tax-compliant companies and individuals are regularly audited despite getting clean audits every year.
  • Keep correct and accurate records – Speak to a professional to ensure compliance with legislative requirements regarding the type of information that should be retained, bearing in mind that SARS can also obtain relevant material from any third party, and – if relevant material is not supplied by the taxpayer – can raise an assessment based on information readily available or obtained from a third party.
  • Act immediately – When you receive notification of verification or audit, immediately contact your accountant. Then, as soon as possible, but certainly within the 21 days granted, make contact with SARS. 
  • Work with the SARS auditor to ensure your personal or business and commercial realities are understood and that misunderstandings or flaws in the analysis of the auditor are eliminated. As SARS notes: “Taxpayers found to be obstructive could face higher penalties…”.
  • Call in expert assistance early – The knowledge and assistance of a trusted tax advisor can ensure that verification and audit findings do not progress unnecessarily. The importance of involving a qualified and capable advisor at the earliest stage of the process – rather than when an objection has been rejected or even later in the process – cannot be overstated. 
  • The law places obligations on SARS in terms of procedural compliance and provides protection for taxpayer’s rights. Failure by SARS to comply with these obligations may render assessments unlawful and could create grounds for objection in a tax dispute. A tax specialist will be able to advise. 
  • Also consider tax risk insurance designed to protect against the risks associated with an audit from SARS. If a taxpayer is selected for a SARS tax audit, the insurer will appoint and pay for a team of tax professionals to defend the audit.
  • At all times, taxpayers can approach the Voluntary Disclosure Unit to make a voluntary disclosure. Be certain to obtain expert guidance and to understand all the implications before doing so.

Taxpayers with complicated declarations or returns should ask their accountant to assist them in preparing for the likelihood of verifications and audits, and successfully completing a verification or audit when selected. Similarly, where penalties and interest have already been imposed, taxpayers may need expert assistance to successfully complete the process of objecting, particularly if the objection is submitted after the prescribed due date.

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Provisional Income Tax Due 26 February: Do’s and Don’ts for Companies

“The only thing that hurts more than paying an income tax is not having [an income on which] to pay an income tax”

Thomas Dewar

Provisional tax is not a separate tax but rather a method of payment used to collect in advance some of a taxpayer’s income tax payable for the year. SARS calls it “an advance payment of a taxpayer’s normal tax liability” and notes in its External Guide for Provisional Tax that provisional tax liability “will prevent a large amount of tax due by you on assessment, as your tax liability will have been spread over a period of time prior to the issue of such assessment”.

Two provisional tax payments are compulsory each year, one six months into the year of assessment (first period) and one on or before the end of the year of assessment (second period). There is also an option to make an additional third or top-up payment, seven months after the end of the year of assessment – unless your year end is anything other than end of February in which event you have only six months for the top-up payment (third period).

 Provisional Tax PeriodsExamples

The provisional return for the first period is forward-looking, requiring companies to estimate their taxable income for the year ahead and then paying tax on this estimate in advance.

The provisional return for the second period is retrospective, since by the year end there is more certainty regarding what exactly the income for the year was, and the tax payable thereon.

While provisional tax payments spread a corporate taxpayer’s income tax liability over two or even three payments, it also increases a company’s tax risk. It creates additional tax filing obligations such as completing and submitting a provisional tax return (IRP 6) twice per year, as well as increasing the risk of attracting penalties, notably underestimation penalties. Furthermore, researchers have found that provisional tax is the most burdensome tax for small businesses, and that penalties and interest incorrectly raised by SARS are the most onerous aspect thereof.

Given that taxpayers will find themselves under greater scrutiny and subject to more punitive measures from SARS in 2021, here are some important insights regarding what companies should – and should not – be doing to minimise their provisional tax liability and to avoid the hefty penalties and interest that can apply. 

 Provisional Tax – Do’s and Don’ts

  • Don’t file late 

A provisional return must be submitted by all provisional taxpayers. Even if your company owes no tax, a ‘nil’ return (i.e. taxable income is equal to zero) must be filed on time.  

For companies with a financial year ending on 28 February 2021, the next due date for provisional tax returns and payments is 26 February 2021, as the last day for submission (28 February) falls on a weekend.

Also remember that if an IRP6 is filed more than four months after the deadline, SARS considers a ‘nil’ return to have been submitted. Unless the company’s actual taxable income is really zero, it will result in the underestimation penalty being imposed, in addition to a late payment penalty and interest.  

  • Don’t pay late 

The failure to make payment on time will result in an immediate late payment penalty, calculated at 10% of the provisional tax amount, whether it is not paid or simply paid late. For example, if the amount payable is R150,000 and is not received by SARS on the due date, a R15,000 penalty will become due immediately.

Furthermore, interest will be levied on the outstanding amount and will continue to accrue until it has been paid in full. The interest is calculated at the prescribed rate, which is the rate of interest fixed by the Minister of Finance by notice in the Government Gazette and is currently 7% – the lowest in 40 years.

  • Don’t under-estimate your annual income  

Estimating the annual taxable income just six months into the year is rarely an easy task. Fortunately, under-estimating income for the first period does not attract a penalty, but the second estimate must be quite accurate (within 80 – 90% of the actual taxable income) to avoid the underestimation penalty.

The underestimation penalty is calculated depending on the taxable income, and the percentage of under-estimation as detailed in the table below. 

  Underestimation penalties

Interest will also be levied on the underpayment of provisional tax as a result of under estimation.

  • Do be proactive 

To avoid an underestimation penalty and interest, it is crucial to take proactively all the necessary steps to correctly calculate the estimated taxable income for the year of assessment.

Make certain that all sources of income are included. The estimated taxable income means gross income less exempt income plus all amounts included or deemed to be included in taxable income under the Act, for example, the amount of taxable capital gains.

Ensure that all rebates and amounts allowed to be deducted or set off are also factored in, including provisional payments already made for the year. 

Also make sure, if you claimed for COVID-19 provisional tax relief, that the company qualifies before factoring in this cash flow relief and ensure such relief is calculated correctly. 

Government’s temporary provisional tax relief measures came into effect in April 2020 and allowed qualifying taxpayers to defer a portion of the payment of their first and second provisional tax liability to SARS, without SARS imposing administrative penalties and interest on the deferred amounts.

Example – COVID-19 Provisional Tax Relief 

Adapted from SARS’ External Guide for Provisional Tax


Claiming this provisional tax relief while not meeting the qualifying requirements would result in normal penalties and interest being applied to the provisional account. 

  • Do maintain common sense and accurate records 

A relatively accurate estimate of taxable income for the year of assessment is expected for the second period. As SARS says: ‘the calculation must be one which has been carefully considered and is thoughtful, earnest and sincere…” and the amount of the estimate must be determined “sensibly and by careful reasoning and judgment, in a mathematical manner, and using experience, common sense and all available information”. 

Keep accurate records of all the calculations and source documents used.
SARS may ask you to justify your estimate and can increase it if they are dissatisfied with the amount. The increase of the estimate is not subject to an objection or appeal.

  • Do call in professional assistance 

The provisions of the sub-sections of Section 89 and of the 4th Schedule to the Income Tax Act are daunting and can be confusing. Nevertheless, provisional taxpayers are ultimately responsible for their tax affairs and may therefore need expert tax advice to comply with the regulations and to avoid substantial penalties and interest.

Companies with complicated returns, including various sources of income or expenses, should consider engaging a CA(SA) tax specialist, like us, to assist them in preparing and/or reviewing their income tax return prior to submission to avoid issues which may be raised by SARS at a later date. Similarly, where penalties and interest have already been imposed and levied, taxpayers may need expert assistance to successfully make a request for the remission of penalties and interest to SARS.

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Companies: How to Manage Your Greater Tax Risk in 2021

If you think compliance is expensive – try non-compliance.”

Paul McNulty, former US Deputy Attorney General

The extent of corporate taxes – from income tax, employment taxes and value added tax (VAT) to dividend taxes, capital gains taxes, transaction taxes and other indirect taxes – along with the operational aspects such as data and reporting systems and related technicalities, guarantee complexity and time-consuming processes for companies, which in turn increases compliance costs.   

This also compounds other tax risks such as under-estimation; underpayments; overpayments; not applying the correct tax savings and incentives; tax penalties – such as the 10% late payment penalty; the inability to meet tax obligations; and assessments and audits.  

Compliance costs are another growing tax risk. Studies suggest that companies spend hundreds of hours and tens of thousands of Rands each year on internal tax compliance costs such as labour or time devoted to tax activities and incidental compliance expenses, and on external tax compliance costs like tax practitioners’ fees. 

In addition, tax issues can place a company’s reputation and brand at risk. An example would be a company losing a tender on a large contract because it was unable to provide a tax clearance certificate, perhaps due to a technical or minor non-compliance issue. Companies also face the risk that a tax issue could attract negative attention from the media, civil society or competitors, as growing numbers of stakeholders ranging from customers to potential investors increasingly support only companies perceived to be contributing their fair share to the country and community in which it operates.

Why tax risk management will be even more critical in 2021

All these tax risks will be amplified in 2021 for a number of reasons, including increased tax liabilities; intensified taxpayer scrutiny; and the further entrenchment of SARS’ powers. 

In the 2020 Medium-Term Budget Policy Statement, Finance Minister Tito Mboweni announced government-projected tax increases of R5 billion in 2021/22; R10 billion in 2022/23; R10 billion in 2023/24; and R15 billion in 2024/25. Companies need to factor these tax increases into their future planning and budgeting. 

Taxpayers will also find themselves under greater scrutiny and likely to be subject to more punitive measures in 2021. Human errors and simple mistakes, which are not uncommon given the complex processes and strict deadlines involved, stand now to be harshly punished even if unintentional. The Tax Administration Laws Amendment Bill, 2020 (awaiting Presidential signature to become law) provides that for certain tax crimes you can be convicted if you acted either “wilfully or negligently”, where previously proof of wilfulness (intention) was required. This means that a court could find a taxpayer guilty of an offence without proof of wilfulness, so that even inadvertent errors could be penalised with a maximum penalty of up to two years’ imprisonment.  

Along the same lines, companies can also expect an increase in the number of tax audits, as well as more detailed, expensive, and time-consuming investigations and audits. These are likely to focus on SMMEs, business owners, trusts and high net worth individuals. Furthermore, SARS’ already extensive powers – including asset forfeiture powers – continue to be entrenched. Just two examples from recent court rulings illustrate: the Gauteng High Court confirmed a taxpayer’s obligation to be vigilant when filing a tax return and liability for appropriate penalties when falling short of this duty, while a North High Court judgement set an important precedent by re-affirming SARS’ right to liquidate a taxpayer to recover debt where an assessment is under appeal. 

How to manage your tax risk 

  • Plan for tax compliance 

A well-defined tax strategy, aligned with your overall business strategy and the specific tax challenges facing your business, is important. As the business grows, a re-assessment of the corporate vehicle or tax structure may be required.  

Detailed planning is also required for the tax year ahead, providing ample time for processes required for proper record-keeping to ensure tax returns are complete and accurate, and that the numerous tax deadlines can be met. 

Planning should also incorporate identifying and implementing relevant tax relief and incentives and assistance. Just one example is turnover tax that provides administrative relief for micro businesses by replacing Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for businesses with a qualifying annual turnover of R1 million or less.

  • Budget for tax compliance 

Proper budgeting is required to ensure all the various tax liabilities can be met before or on the stipulated deadlines, while also factoring in the effect of the annual tax increases announced in the latest Medium-Term Budget Policy. 

Companies also need to budget for compliance costs including the internal cost of labour or time devoted to tax activities, incidental expenses, and the resources, systems and continuous upskilling required to meet ever-changing tax obligations. The budget should also provide for external costs such as tax practitioners’ fees; external reviews of the tax function; and even tax risk insurance to cover the cost of immediate expert assistance and support from a team of tax professionals in the case of a SARS’ tax audit.  
 

  • Call on expert professional services  

Given the increase in compliance complexity and costs, the expertise of accounting officers and auditors is vital in determining the taxable income and the amount of tax to be paid. 

Advice from a tax professional can ensure an appropriate tax strategy is formulated to proactively manage your tax risk in the long-term, saving time and money and avoiding expensive tax mistakes, while keeping in line with the ever-changing tax obligations.  

Be sure to choose a specialist who is appropriately qualified and experienced, as well as a member of a professional controlling body that enforces strict standards, such as SAICA (South African Institute of Chartered Accountants).

Benefits of professional tax risk management 

Failure to manage tax risk effectively will negatively impact on an organisation’s profitability. However, beyond managing tax liability, there are further benefits to managing a business’ tax risks. One of these is more accurate records resulting from tax compliance obligations. This improves the availability of up-to-date information and insight into the financial position of the business and its profitability – enabling accurate, timeous financial management which is crucial to business success. In addition, tax compliance has become both a corporate governance and a reputational issue and can create both shareholder value and stakeholder trust. These benefits, along with tightly managed tax liabilities, will certainly assist companies as they build back after the economic upheaval of 2020.

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The Five Most Common Tax Pitfalls That Small Business Owners Should Avoid

There are five common tax pitfalls that owners of small businesses should look out for and avoid.

These hazards include three value added tax (VAT) issues, one provisional tax matter, and the fifth item deals with the tax implications for owners of small businesses when they draw money from their company.

Failing to avoid these pitfalls can cost small businesses dearly in terms of time, stress, and money, including fines. The cost of sorting out these hazards can even destroy small businesses.

Failure to register for VAT

The first issue is that many owners of small businesses fail to realise that the VAT Act requires that they register for VAT. This requirement becomes necessary once a business has made taxable supplies exceeding R1 million during twelve consecutive months.

Once a small business reaches this threshold, then they need to charge their clients VAT for the goods or services sold. “When small businesses manage their tax affairs, they often neglect to do this because they are not aware of this requirement,” Jean du Toit, head of tax technical for Tax Consulting South Africa.

If it comes to light that a company failed to register for VAT, then SARS could impose penalties, including understatement charges and late payment fines and interest. These penalties will be back dated to when a small company should have been accounting for VAT.

Small businesses can register for VAT with SARS by applying online, and the process is reasonably straightforward and quick but ask for professional help in any doubt.

For micro businesses, it may not initially be viable to register for VAT, as they may be mainly dealing with suppliers and clients of a similar size.

However, the larger a business grows, the more it would lose out on the opportunity to deduct input VAT that they pay over to VAT vendors that supply them with goods and services and so miss out on lower costs. Input VAT is the tax that a VAT vendor can claim back as a deduction from SARS. The output VAT is the tax that a VAT vendor levies on the supply of goods and services and then pays over this tax to SARS.

The advantage of registering for VAT is that it gives a company greater access to business opportunities, including tenders and contract, which usually require a company to have a VAT number.

The only way to rectify the lack of the required VAT registration was to apply for SARS’ Voluntary Disclosure Programme (VDP), Du Toit said. Such a VDP application could see SARS waive any penalties, but it would require the company to pay over the VAT due and interest on late payment of this tax. Ask your accountant to help with any VDP application.

A business can voluntarily register for VAT if over twelve months its income exceeded R50,000. Tertius Troost, a Mazars senior tax consultant, said it might benefit a small business to register voluntarily for VAT if they have many suppliers. But companies must know that there was a cost that went with complying with the VAT Act, he added.

Failure to obtain valid tax invoices

The second pitfall relating to VAT was that small business owners often fail to secure valid tax invoices for their VAT input claims, Troost said. Input VAT should have a neutral impact on a company, but if SARS disallows specific claims, then the input VAT becomes a cost, and that will reduce a company’s profitability.

When a small company claimed input VAT from SARS, it was required to keep records, including specific invoices from their suppliers. “If a company’s administration is not up to scratch, they might not have these documents, or these documents may not meet SARS’ requirements as prescribed in the VAT Act. At that point, SARS won’t allow you to claim back your input VAT,” Du Toit added.

Ettiene Retief, FTR Tax and Corporate Administration partner, said that SARS usually focussed on the invoices a company received from its suppliers when reviewing VAT input claims.

The VAT Act specifies that the following details should appear on an invoice for any amount greater than R5000:

  1. The word “tax invoice” or “VAT invoice” or “invoice”,
  2. The name, address, and VAT registration number of the supplier,
  3. The name, address and, where the recipient is a registered vendor, the VAT registration number of the recipient,
  4. The unique number of the invoice, and
  5. An accurate description of the goods or services supplied, and the volume or quantity of goods or services provided.

For invoices of less than R5000, only the supplier’s information needs to be included on the invoice and not the recipient’s details. Here the supplier need not specify the quantity of goods or services supplied.

Trying to claim input VAT for the wrong items

The third issue regarding VAT is that small companies often try to claim input VAT on entertainment, petrol, and rental of motor vehicles. But the VAT Act makes it clear that companies cannot claim these expenses for VAT purposes.

If a company bought milk, coffee, and sugar to offer to its clients when they visited, the company could not claim VAT on these items because SARS viewed these as entertainment costs, Retief said. “When I’m in my boardroom, I’m selling my time and the coffee is not part of what I’m selling,” he added. “However, if I own a coffee shop, then I can claim VAT on the coffee beans that I buy,” he added.

If SARS finds that a person or company claimed goods ineligible for VAT purposes, it will reject these claims. In addition, if SARS finds that a person or company has overstated their input VAT, then that means understatement penalties and interest would apply.

Misunderstanding about income received in advance

The fourth common issue was that small businesses often forgot that income received in advance was taxable, Du Toit said.

A common area where companies required deposits was for major construction contracts, he added. An advance payment like this was immediately taxable in the hands of the recipient of that money. Retief said that an exception to this rule was when a company was paid a deposit as security.

This knowledge is vital for small businesses when they need to make their provisional tax submissions. SARS requires taxpayers to make these submissions twice a year in February and August.

Small companies had to include income received in advance in their provisional tax disclosure to SARS or face penalties.

Implications of drawing money from the business

The fifth prevalent tax issue of which small businesses are often unaware is the tax implications of drawing money from their company through interest-free loans or withdrawals that SARS would deem to be dividends or remuneration. This situation arises with small companies which have a sole director or owner, and he or she makes loans from the company to themselves.

Another problem is that small companies rarely establish a formal loan agreement between the company and the director.

If a company director takes a loan from the company without charging interest, then SARS would view that interest as a dividend in specie paid by the company to the director and the company would have to pay dividends tax on that amount.

Another way that directors of small companies try to avoid paying tax on their remuneration is to have their company issue them with a loan, instead of being paid a salary. “The company should classify the loan as a salary. What often happens is that the director never pays back the loan, or they pay it back slowly over many years to avoid paying income tax,” Du Toit said. “If SARS does a full audit of a company’s books and they see that in substance that loan is not a real loan but a salary, then the agency can reclassify that item, and there will be tax consequences such as penalties and interest,” he added.

Troost said that usually, the most tax-efficient way for a director or owner of a small company to withdraw money from their company was to receive a salary rather than to withdraw money as a dividend or to receive an interest-free loan.

Retief said that owners of small businesses often make withdrawals from their business by paying for personal items. But the problem was that the owner and the company are separate legal entities. Directors of small companies often used this means of withdrawing money from the business to avoid paying tax, he added. “With small businesses, the temptation is not to show a big salary because of the tax is payable on that money,” Retief said.

At the end of the financial year, the company puts payments for personal items through the director’s loan accounts. But it is often difficult to untangle all the transactions and split the personal items from the company transactions, Retief said.

Keep this list of common pitfalls in mind and ask your accountant for advice on your specific circumstances in any doubt.

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August 2020 Employer Interim Reconciliation Submission: 14 September to 31 October 2020

This year, the August 2020 (202008) Employer Interim Reconciliation submission period will commence on 14 September and end on 31 October 2020.

During the Employer Interim Reconciliation, employers need to reconcile their Monthly Employer Declarations (EMP201) for the first six months of a Reconciliation Year (March to August) with the tax values of the interim IRP5/IT3(a) certificates for the same period and submit their Employer Reconciliation Declaration (EMP501).

SARS is constantly enhancing its online offering to make it easy and simple for employers to comply with their payroll tax obligations. For clarity and certainty, we introduced the following changes.

New source codes for the 2021 Year of Assessment

The following new source codes are applicable for the 2021 Year of Assessment:

  • Income code 3618/3668: Fund Administrators must use these codes to declare regular pension or purchased annuity payments originating from provident or provident preservation funds.
  • The following income codes differentiate between pension or purchased annuity payments originating from the following sources respectively:
    • 3603/3653 – pension or purchased annuity payments originating from pension or pension preservation funds,
    • 3618/3668 – pension or purchased annuity payments originating from provident or provident preservation funds,
    • 3610/3660 – pension or purchased annuity payments originating from retirement annuity funds, and
    • 3611/3661 – taxable portion of a purchased annuity paid by long-term insurers not from a retirement fund.
  • Income code 3724: Employers must use this code to declare any payment received by their employees from a COVID-19 Disaster Relief Organisation. These payments do NOT include payments received from the Unemployment Insurance Fund (UIF) Temporary Employees Relief Scheme (TERS).
    • Payments from the UIF TERS are exempt from tax and must not be reflected on the IRP5/IT3(a) certificate issue by employers to their employees.
  • Deduction code 4055: Employers must use this source code to declare any donations made by employers on behalf of employees to the COVID-19 Solidarity Fund.
    • Donations made to other qualifying COVID-19 Disaster Relief Organisations must be declared under existing deduction code 4030.
  • Information code 4587: Employers must use this code to indicate the value of the section 10(1)(o)(ii) foreign remuneration exemption taken into account for calculating PAYE.

Excessive Liability Change Workflow

SARS have found that some employers do not capture the correct PAYE liability on the monthly EMP201 returns. The incorrect calculation of the monthly PAYE liability may result in imposition of penalties and interest. This includes corrections done on the EMP501 reconciliation and any shortfall is attributed to the last month of the reconciliation period.

As from the 2019 Year of Assessment, SARS is comparing the PAYE liabilities captured on the EMP501 with the PAYE liabilities declared in the EMP201 returns and processed in the accounts for the relevant months. If the liabilities captured on the EMP501 is significantly reduced, SARS will inform the employer of the said excessive liability changes per letter. SARS will request the employer to amend its EMP501 submission. If the employer chooses not to amend the EMP501 submission, SARS will route the EMP501 for manual intervention. SARS will determine if the changes are correct based on the reason provided by the employer. If the employer did not provide sufficient motivation, SARS will engage with the employer to resolve the issue.

Employment Tax Validation

The Employer Reconciliation process is a crucial first step in the wider income tax reconciliation process enabling SARS to issue individuals with their personal income tax return prepopulated with payroll data. This, together with information from other providers of third party information, makes it easier for individuals to fulfil their income tax obligations.

Therefore, it is important that the information contained in IRP5/IT3(a) certificates is correct. SARS will validate the employment tax liabilities declared on the IRP5/IT3(a) certificates and if inconsistencies have been identified, notify employers per letter on eFiling or e@syFile™.

New Notice of Non-Compliance Penalty Assessment

From the end of September 2020, a monthly Notice of Non-Compliance Penalty Assessment will be issued to employers showing all the imposition of penalties on the account for that specific month.

e@syFile™ changes

  • Enhanced resubmission function – When a resubmission of an EMP501 reconciliation is done, e@syFile™ will include all IRP5/IT3(a) certificates instead of only the amended certificates.
  • Time-out issue resolved – The time required to download the e@syFile™ Employer varies due to network and PC configurations. In some instances, employers get a time-out notification while the download is running and they have to login again. To address this, SARS had introduced a pop-up message to advise the user that he/she cannot use e@syFile™ functions while downloading the new version.
  • Summary report – SARS will provide a summary report to employers with big payroll systems or use e@syFile™ to merge data from multiple payroll systems to verify the certificates included in a reconciliation submission. This function will be available under the EMP501 Reconciliation and will allow employers to extract a pipe delimited file for a specific period of reconciliation.

Compliance is encouraged

We thank all employers who heeded the call for compliance and successfully submitted their annual reconciliations during April/May 2020. By submitting the interim Employer Reconciliation Declaration (EMP501) for the period 1 March 2020 to 31 August 2020, you are paving the way for the submission of the annual EMP501. Any issues that may arise may be addressed timely. We encourage employers to comply and meet all their tax obligations. For information and clarity, please contact SARS through the various online channels at www.sars.gov.za > Contact Us.

Jacobs also suggested in response to questions that to allow for easier retention of staff, SMEs should review all expenses, especially rent.

A third retention tactic that he suggested was that small companies remodel the roles of their staff, so they take on extra duties or get the employees to help the company offer new services and products given the opportunities because of COVID-19.

If a company had to retrench staff, it was critical that the business part with its staff on the best possible terms so that when the economy grows again, these former employees would be keen to re-join the business.

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Tax Incentives to Invest in Small Business: The Clock is Ticking

Creating an environment where SMMEs can thrive is inextricably linked to creating conditions in which all businesses can thrive.

National Treasury, 2019 Economic Strategy Document

The VCC (Venture Capital Companies) incentive allows a holder of shares to claim a 100% tax deduction of the cost of the shares issued by an approved VCC, provided certain requirements are met. The deduction is subject to recoupment if the VCC shares are held for less than five years.

VCCs have been investing in small and medium-sized businesses (SMEs) that include education, agriculture, renewable energy, hospitality and tourism, and student accommodation. Many of them are especially hard-hit by the strict lockdown regulations imposed on businesses.

Funding has always been a major stumbling block for start-ups, and small businesses wanting to expand. They will find it far more difficult post-COVID-19 to get access to funding.  Without the tax incentive it is possible that investments may flow offshore – investors will take their money where the rewards match the risks.

According to SARS, there were 180 registered and approved VCCs which had raised R8.3 billion at 28 February 2019.

The VCC industry body, 12J Association of South Africa, conducted its own survey on the impact investments have made to date. It released the results in June this year. 

Responses were received from 12J managers that collectively manage 106 VCCs and R9.3bn in assets under management to date.

The R9.3bn industry assets under management has been raised from over 5,500 investors, equating to an average investment amount of R1.7m per investor.

The survey report shows that the Section 12J capital raised has been invested into more than 360 small, medium and micro-sized entities which in turn support 10,500 jobs (50% of them permanent) across dozens of industries.

According to the survey the incentive has been cost-effective at an average cost per job of approximately R126,000 for each current job created. This is in contrast to current job creation focused incentives in South Africa, which allow for a required cost per job of up to R450,000.

Getting the investors

When the VCC tax incentive was introduced these companies were to be the “marketing vehicles” to attract retail investors with the tax incentive as a major advantage.

There was an initial investment limit of R750,000 per tax year and a lifetime limit of R2.25m. This limit was removed around 2011 in order to make the incentive more attractive.

However, due to several amendments to the Act, aimed at combatting perceived abuse, the incentive only really gained traction after 2015.

In July last year new caps were introduced. Investments by a natural person and trusts were capped at R2.5m and for companies investments were capped at R5m in a tax year.

Small businesses – the clock is ticking!

The regime is subject to a 12 year sunset clause that ends on 30 June 2021.

Many of the industries qualifying for VCC investments were hard hit by the impact of the COVID-19 pandemic. Survey participants expect COVID-19 to have a negative impact on the ability of SMEs to obtain equity capital over the next year and even the next two years. This is likely to manifest itself in a far higher unemployment rate and corresponding lower growth in the South African economy.

More than 75% of the participants in the industry survey said investors would not have invested their capital in SMEs, had it not been for the attractiveness of the Section 12J tax incentive.

The 12J Association of South Africa suggests that the tax incentive should be extended until at least 2027.

SMMEs will now need more support than ever before, and if your small business is struggling to find funding, ask your accountant now for advice on applying to a VCC. Unless the June 2021 sunset clause on tax incentives for section 12J funding is extended, support from investors will soon dwindle – the clock is ticking!

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Talk to your Tax Practitioner before accepting SARS’s new auto-assessment

Last month the South African Revenue Services (SARS) announced the mass roll-out of its auto-assessment of taxpayers earning salaries, but as many tax and accounting practitioners have already discovered, this may deny clients lawful and valid claims.

SARS Commissioner Edward Kieswetter announced the mass roll-out of auto-assessment, which he said would alleviate the administrative burden on his staff. But comments from several tax practitioners cast doubt on the advisability of accepting auto-assessments from SARS.

Many tax practitioners are advising their clients not to blindly accept the auto-assessment from SARS as they may lose out claiming valid additional deductions or worse, not declare all their income, which is an offence and may land them in hot water. 

The SA Institute of Business Accountants (SAIBA) CEO, Nicolaas van Wyk, stated that, “practitioners have an ethical responsibility to inform their clients of their taxpayer rights and responsibilities. All income must be declared and all valid deductions such as travel, medical, office expenses must be claimed. Tax practitioners must ensure that taxpayers receive the best advice and guidance so that they only pay the correct amount of tax and claim all the deductions they are allowed. The auto-assessment does not necessarily capture all this data correctly”.

In August 2020, SARS will be implementing an auto-assessment to some individual taxpayers. Taxpayers may receive an SMS if they are selected to be auto-assessed. Essentially this means that SARS attempted to complete your tax return based on third party data alone (such as IRP5, medical, investments). The intention is to save costs of filing and streamline the process. However taxpayers must still ensure they agree or declare all income and expenses. They need a tax practitioner for this.

“SAIBA urges taxpayers to contact their tax practitioner first before accepting the auto-assessment”, says van Wyk. 

Tax practitioners are duty bound to act in the best interest of their clients. This means carefully reviewing their tax affairs to ensure they can claim all allowable deductions and disclose all relevant income. In this way they make sure their clients claim or are refunded the legally appropriate amount, and not what SARS says you must pay.

It may be safer for some taxpayers not to accept the auto-assessment but rather file tax returns (as before) from the 1 September. Doing so will prevent the following scenarios from happening:

  • Potentially no/or a reduced tax refund because SARS doesn’t have all the client data
  • Potential errors as SARS may not have the latest tax certificates from the employer
  • No ability to claim tax deductions which will not appear on your auto-assessment e.g. medical expenses, donations, home office, wear and tear, etc.

SAIBA’s regional head for the West Rand, Grant Richardson, says the auto-assessment could infringe on taxpayer rights. “There are several problems we have encountered with the auto-assessment. For example, travel allowances do not distinguish between business and private travel. That information must be input manually into the system, otherwise you will get an incorrect allowance and therefore pay too much tax. There are other areas that will also result in the auto-assessment throwing out a figure which is to the benefit of SARS, but not to the client.”

SAIBA members and practitioners point to several areas where the auto-assessment is throwing out incorrect assessments based on wrong data. These include allowable deductions for Retirement Annuity contributions, interest income and medical expenditure which may not be detailed on IRP5 forms. These must be manually entered in order to avoid a tax overcharge by SARS.

Tax filing dates

The new filing dates for the 2020 tax filing season, which cover income/expenses from 1 March 2019 to 28 February 2020, will be as follows:

  • Salary earning (non-provisional) taxpayers who file online: 1 September 2020 to 16 November 2020
  • Provisional taxpayers who file online: 1 September 2020 to 31 January 2021
  • Branch filers (By Appointment): 1 September 2020 to 22 October 2020.

Should you like assistance with submitting your tax return, contact us at ep@emmapardoe.co.za.  

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Tax Season 2020 will be Easier Thanks to SARS’ New Approach!

SARS has announced changes to this year’s tax filing season, driven partly by its ongoing innovation program and partly by the Covid-19 pandemic. Whilst as author Margaret Mitchell pointed out there never is a convenient time for “death, taxes and childbirth”, SARS’ new changes offer time-saving benefits to taxpayers, and it is important to understand how they will impact on us in practice.

To that end we set out how Tax Season 2020 is now split into three time frames. We discuss each of them, with additional insight into the “auto assessment” notices that will be sent via SMS. We end with a table conveniently summarising the deadlines.

Death, taxes and childbirth! There’s never any convenient time for any of them.

Margaret Mitchell, Gone with the Wind

This year’s tax season will unfold in a different manner to previous years. These changes have been driven by ongoing innovation at SARS and by the Covid-19 pandemic.

The tax season is split into three time frames:

1. April 15 to May 31

This is the period when employers submit their reconciliation of employee earnings and all third party information providers (providers of interest certificates, medical aid certificates, retirement earnings are three examples) send their certificates to SARS and the relevant individuals.

All of the above had to be with SARS by the end of May.

SARS have used this time to verify information from the National Population Register, the Deeds Office and the Companies’ Register.

As all of this information becomes available, SARS have begun populating individuals’ tax returns.

2. June 1 to August 31

Taxpayers need to ensure that all their information is up to date and accurate – for example, if they have moved, they need to reflect their new address on eFiling.  Taxpayers should also be testing their eFiling usernames and passwords and ensuring they can communicate electronically with SARS. They should also verify that all third party information is correct.

SARS will be following up on third party information, checking it for accuracy. In cases where SARS finds substantial non-compliance, they may lay criminal charges against third party information providers (including employers).

Auto Assessments

During this period SARS will issue a large number of taxpayers with auto assessment notices via sms and taxpayers need to check theirs on SARS eFiling or SARS MobiApp and indicate to SARS if they accept the assessment outcome. Where the taxpayer accepts the outcome of the auto-assessment, the taxpayer will not be required to submit a return.

The auto assessment process will take a significant amount of work out of the tax season – many taxpayers benefit by not needing to submit a return and SARS do not need to assist that many people in SARS branches plus they save much admin work.

SARS will notify taxpayers whose third party data is compliant that they may file early i.e. before September 1.

3. September 1 to January 31

SARS will issue a public notice to confirm which taxpayers need to submit a return.

Those taxpayers who file manually at a SARS branch must do so by October 22. Taxpayers must make an appointment online to see an assessor and need to arrive on time for their meeting with a reference number SMSed to them by SARS. Due to the impact of Covid-19, these appointment rules by SARS will be rigidly enforced.  

Non-provisional taxpayers who file electronically have until November 16 to submit their tax return on SARS eFiling.

Provisional taxpayers who complete their return electronically must do so on or by January 31, 2021.  

To summarise due dates:

TAX SEASON 2020 DEADLINES

Type of Taxpayer Channel Due Date
Non-provisional and provisional taxpayers Manually at a SARS Branch 22 October 2020
Non-provisional taxpayers File electronically 16 November 2020
Provisional taxpayers File electronically 31 January 2021

Although there will be the inevitable teething problems with the new approach, it offers time saving for both taxpayers and SARS.

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Be Ready for a SARS Lifestyle Audit

Being suddenly subjected to a SARS “Lifestyle Audit” is a nerve wracking business with the risk of penalties of up to 200%, backdated interest, and criminal prosecution.

What external sources of information does SARS have access to? How does SARS select targets for lifestyle audit? If you are unlucky enough to be selected, what will happen and how can you be prepared? Can you refuse to co-operate and/or demand access to information from SARS before complying? We address those questions and discuss a High Court decision in which an individual faced the imprisonment for failing to answer a lifestyle questionnaire.

We read about Eskom staff having to undergo lifestyle audits so that corruption can be identified and stamped out.

SARS have been conducting lifestyle audits since 2007. These audits are conducted when SARS suspects that the taxpayer is not declaring all his or her income and thus is underpaying tax due.

SARS have access to many sources of information

Data can be accessed from:

  • Your banks
  • The Deeds Office for property transactions
  • Financial institutions for mortgage loans or motor vehicle finance
  • Vehicle registrations
  • Social and other media where your lifestyle can be ascertained
  • Perhaps most significantly jealous neighbours or “friends” who tip off SARS that your lifestyle exceeds the purported income you earn (SARS actively encourage people to tip them off when they think people they know are living beyond their means).

How do SARS select people for lifestyle audits?

SARS does not disclose the criteria it uses to start probing taxpayer’s affairs or how it selects those who have to complete a lifestyle audit. If you are selected, you have to complete the audit in the time set out by SARS.

One individual selected demanded to know the reasons why he was picked, and refused to complete the 26 page “lifestyle questionnaire” sent to him by SARS (seemingly after a ‘third party’ tip off). He had never registered as a taxpayer, nor had he ever submitted tax returns. The matter went to the High Court which rejected the individual’s right to demand “SARS confidential information” and ordered him to provide the information required by SARS, on pain of committal to prison for contempt of court until he submitted the lifestyle questionnaire.

What to expect if you are selected

You will need to provide details of day to day living expenses including rent or bond payments, groceries, entertainment, vehicle expenses, holidays – in fact every item of cost you and people related to you incur. These will be reconciled to bank statements. In addition, SARS will probe all sources of your income.

In doing this process SARS can request information going back five years. If you don’t have the necessary documentation to justify income or expenditure, then SARS can levy taxes on these amounts. Keep good records.

It pays to be honest and as thorough as possible when completing this process. As noted above SARS have many sources of information to check the data provided by you.

The bad news

If a taxpayer has been under-declaring income or cannot justify expenses that have been claimed, then SARS will issue assessments for these amounts. Penalties of up to 200%, plus interest may be levied by SARS who can also report the taxpayer to the National Prosecuting Authority for potential criminal proceedings. The only bit of good news is that SARS do not use search and seizure operations when conducting lifestyle audits – these are for criminal cases that SARS pursues.

Lifestyle audits are nerve racking and risky for taxpayers. Keep good records and consult your accountant before submitting information to SARS.

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Your Tax Returns Are Due: Make Sure You Fill In Your Return Correctly

“The hardest thing in the world to understand is the income tax”

Albert Einstein

Provisional taxpayers using eFiling need to have completed and submitted their 2019 income tax return on or by 31 January.

Make sure you are prepared for this and don’t underestimate the time needed to put the return together. As a starting point you should have a good filing system which makes it easy to find documentation needed to both fill in the return and upload to SARS in terms of supporting schedules.

The income tax return form runs to more than thirty pages, so there is plenty of work to be done – don’t leave it to the last minute!

Your return must be complete

The onus is on you to satisfy SARS that your return is comprehensively and completely filled in. Thus, even if you supply SARS with all the documentation and explanations required, not ticking a box in the form that is applicable can lead to SARS deducing that you have not met your obligation of full disclosure.

This is important as if SARS deems there to be a material non-disclosure in your return (remembering that SARS tends to apply a very narrow interpretation of this) then the three year prescription period for your tax return is waived and SARS can go back and start raising queries on your 2010 return for example. This can put you onto a nightmare road, so take extra care.

We are all aware that SARS has been missing its collection targets in recent years and is under enormous pressure to maximise revenue from taxpayers.

Emma Pardoe CA (SA) is there to assist you – this is a good time to make use of her services.

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A Break for Taxpayers on Interest Received From SARS

Until last year taxpayers had to accrue interest owed to them by SARS. This proved difficult for taxpayers as SARS can take a few years to refund the interest to you. This is exacerbated by the fact that SARS frequently adjusts the interest due to you, which can relate to a prior year.

Thus, taxpayers have found it difficult to correctly account for the interest owed to them.

The accrual concept

This is well established in tax law and frequently we are obliged to show even income still to be paid to us as received because it is legally due to us although not necessarily paid. Property development is a good example – when a developer sells off-plan, the income from the sale falls into taxable income even though it may be a year or two before full payment is received.

But SARS have been proactive

To clear up these practical difficulties for taxpayers, the Income Tax Act was amended with effect from 1 March 2018 so that taxpayers only have to show SARS’ interest due in the year it is received. This will make it easier to complete your tax return and will also assist with your cash flow as now tax is only due on actual receipt of the interest, not on accrual.

Transitional arrangements   

One issue is how do you account for tax accrued in previous years? For example, if you had to include R1,000 in interest due in 2018 but now in 2019 this interest is paid to you. Including it in your 2019 assessment will mean you have paid tax on the interest twice (in 2018 and now again in 2019). 

SARS has yet to issue a final Binding General Ruling (BGR) on this but the draft BGR addressed this by stating that interest need not be included in taxable income if it had been accrued in prior years. Hopefully, SARS will soon release this BGR in its final form and resolve this problem.

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Websites of the Month: Your Selection of Budget 2019 Tax Calculators (And a Tax Guide)

 “People who complain about taxes can be divided into two classes: men and women” (Anon)

  • How long will you work for the taxman today?
    Input your salary into the 2019 Tax Clock calculator and find out how many hours you will spend today working for the taxman, and at what time precisely you will finally start working for yourself (warning – it’s not pretty!).
  • How will your income tax change?
    Put your monthly taxable income into Fin24’s Budget 2019 Income Tax Calculator to find out.
  • How much extra will your sin taxes cost you this year?
    Work out how much more you will be shelling out for spirits, wine, beer and cigarettes (or how much you will be saving if you don’t indulge!) with Fin24’s Budget 2019 Sin Tax Calculator.
  • Your Pocket Tax Guide “From the Horse’s Mouth”
    Download the official SARS Budget 2019 Tax Guide from the National Treasury website here.
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Be Ready for SARS Employee Audits

With SARS struggling to meet its revenue targets and individuals carrying the bulk of the tax burden, we can probably expect SARS to increase its audits of employees’ tax returns.

Forewarned being as always forearmed, we discuss the implications for both employees and employers, with suggestions on how employers should have their employees handle queries (whether they do it themselves or through their own tax advisers). An audit can be a costly, stressful and time-consuming exercise for everyone involved – minimise the risks to your business with these tips…

Implications for employees

Any SARS queries will be initially directed at employees who will have to justify what they have claimed. Most employees will go back to their employer and say, for example, ‘there is this query on my car allowance and how should I respond?’

It would make sense for employers to ask all employees to run SARS’ questions through the employer so that SARS receive a consistent answer (employees may have their own tax adviser to help the employee respond to the query, but the adviser may not understand how the employer’s tax administration works).

Implications for employers

If SARS is not satisfied with the responses to their queries, they may start to look at how the employer administers its employee tax obligations.

  • Remuneration and benefits paid to:
    •  expatriate employees
    •  local employees
    •  executives and directors
  • Retirement benefits for employees, executives and directors
  • Payments to labour brokers and independent contractors
  • Share incentive schemes
  • Cashbook payments
  • Gifts, prizes, awards and gift vouchers
  • Loans to employees
  • Company cars
  • Travel allowances and reimbursements
  • The Employment Tax Incentive (ETI).

These taxes are all different and require an understanding of tax legislation and the administrative systems required to process and collect the taxes.

In making their enquiries of the employer, SARS will most likely look to get an understanding of the employer’s systems and if dissatisfied with the response may audit the employer.

An audit can take up to one year to complete and apart from the stress of the audit there will be penalties, interest plus tax due where SARS finds the tax has been incorrectly calculated. SARS can also go back several years when they find errors, and this can become a costly exercise. At the moment, SARS appears to be homing in for the most part on the ETI, labour brokers, company cars and travel allowances – perhaps, therefore, pay particular attention to these taxes.

So, it is a prudent idea to frequently test how robust your systems are and how well you understand the tax laws. SARS often tweaks the law and issues interpretation notes on how businesses should levy and pay over tax.   

Having an independent viewpoint can be invaluable when testing your systems – make use of your accountant to help you as apart from being at arm’s length he or she has the skill and experience to assist in this important exercise.

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SARS: Changes to the Employer Statement of Account

This form is designed so that employers can easily reconcile their payroll taxes (PAYE, UIF and SDL). These taxes have proved difficult to reconcile and this redesigned form is intended to simplify this process. It is important to get this right to avoid paying penalties and interest.

A significant step taken by SARS is that employers can now actively manage their payroll taxes. Businesses can now make adjustments to their account and can correct misallocated payments.  Omissions and other account mistakes can be corrected (there are misallocations going back a few years) and SARS accept they will have to assist in resolving some of the queries. A case management system has been established so that taxpayers can monitor the progress SARS is making with these queries.

There are other enhancements to the Statement of Account such as grouping of like transactions and a receipt number for payments and journals which will help employers trace these payments to their bank statements.  

With employers having the ability to make adjustments to payroll tax submissions comes increased accountability to manage their payroll taxes. It will also help SARS to streamline their workload.

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How Tax Returns Will Be Easier This Year, and Should You File if You Earn Under R500,000?

Tax season 2019 begins on 1 August (1 July for taxpayers who are registered for eFiling or have access to the MobiApp) and SARS has taken further steps to reduce the burden on both taxpayers and SARS’ administrative systems. 

This year there are three initiatives:

  • Increase the threshold of submitting tax returns from R350,000 to R500,000,
  • Enhancements to the MobiApp and improvements to EasyFiling,
  • Moving out the dates for submission of returns.

Threshold increased to R500,000

Taxpayers with employment-only income now only have to file a tax return if their annual employment income exceeds R500,000 (previously R350,000). The provisos to this are taxpayers must have: 

  • Only one employer during the tax year,
  • No other income such as rentals received or car allowance etc,
  • No other additional deductions to claim e.g. medical costs or retirement funding,
  • Not made a capital gain of R40,000 or more. 

A problem SARS has had with this is that many of these taxpayers still submit returns – up to 25% of tax returns received do not need to be filed. In a further effort to prevent taxpayers submitting unnecessary returns, SARS will send each of these taxpayers a simulated outcome as if they had filed a return which will show no tax is due. 

Should you file a return even if you don’t have to?

If you may be in line for a tax refund, then it pays to do a tax return. In addition, if you think you may need a Tax Clearance Certificate it is probably prudent to complete a tax return. This will save any potential delays as SARS may query why you did not file your income tax form.

Ask your accountant for advice specific to your situation.

Enhancements you need to know about

SARS has been making efforts to upgrade their IT systems to reduce the number of people who use SARS branches to complete tax returns. Thus far this has had limited success, so SARS is increasing its efforts this year.     

  1. The MobiApp
    This enables taxpayers to submit their returns using their smartphones. Security has been enhanced by: 
    • A biometric authentication facility
    • A one time pin has been added
    • The use of security questions, and  
    • You can easily reset your password and username.   

      One really good feature is the scanning and uploading of documents. 
      Note: the MobiApp cannot be used for provisional payments

  2. EFiling
    The system is now more user friendly for making payments, submitting your return and uploading documentation. In addition, Notices issued by SARS will be more specific, e.g. the Notice will specify what documentation SARS require in the event of verification and audit

Taxpayers may use the MobiApp or EFiling from 1 July but may only use branches for submitting their returns from 1 August. 

Your Tax Season 2019 Deadlines 

(Adapted from a SARS table)

What is of interest in the table above is that the deadline dates have been moved out for manual submissions (it was 21 September last year) and for non-provisional taxpayers (31 October in 2018) whilst there is no change for provisional taxpayers.    

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How Many Days Did You Work For The Taxman In 2019?

“Tax Freedom Day is calculated by dividing general government revenue by GDP at market prices, then multiplying the result by the number of days in a year, and finally adding a day” (Free Market Foundation)

In the current year it will take the average South African 137 days to pay off his taxes and only from the next day does the taxpayer then work for himself or herself – this day is known around the world as Tax Freedom Day (TFD). The 138th day of 2019 was 18 May.

So, what does this tell us? 

The news is not good – in 1994 TFD was 101 days. Last year TFD was on 13 May, a slippage in one year of 5 days. 

Looking at the Free Market Foundation’s formula, if GDP rose then TFD would drop. Broadly speaking, this tells us that not enough tax revenue is being channelled into investment as investment leads to a growth in GDP. This is hardly surprising when you consider that salaries are the largest component of government expenditure. 

On the other side of the equation, we are being increasingly taxed. In the last few years VAT and income tax have risen whilst new taxes such as the Sugar Tax and now Carbon tax have been implemented.

The President has promised that he will reform the economy to make it more attractive to invest in South Africa – let’s hope he succeeds.

Where does South Africa stack up globally?   

We are in the middle of the scale – it depends on the structure of the country. Welfare states like Norway and Germany approach 200 days whilst countries like the USA and Australia are just over the 100 day mark. 

The question we have to ask ourselves is whether South Africans enjoy sufficient economic benefits to compensate for being approximately 5 weeks behind the USA and Australia? 

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Youth Employment Tax Incentive Extended for Ten Years

There is chronic unemployment in the country and it is especially felt by the youth where up to 50% cannot find a job. The Employment Tax Incentive (ETI) is designed to encourage companies to employ “youths” (between the ages of 18 to 29) for 1 to 2 years.

Incentives for employers to make use of the ETI are attractive. You can deduct from your monthly PAYE owing the amounts shown below in the third column. In addition, these deductible amounts are exempt from Income Tax i.e. you get a double benefit.

The monthly calculated ETI amount per qualifying employee is determined as follows:

There are conditions – the employer must be in good standing with SARS and employees (apart from being aged 18 to 29) must have valid ID documents (or be a legal refugee).

This is a good incentive and it helps to address one of South Africa’s intractable problems. Another advantage is you can over the two year period identify employees with potential who will fit into your business.  Speak to your accountant to ensure you claim this incentive correctly. 

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