Tax evasion is a crime which can see you spend a few of your days in prison. We are talking about a possible 5 years in prison. That is quite serious!
When does the 2020 tax season begin?
Due to Covid-19, the tax season will be shorter than normal. Normally, the tax season starts around June. This year, SARS announced that the tax season will open on 1 September 2020. This is for taxpayers who would have not been auto-assessed by SARS. For taxpayers who would have been selected for auto-assessment, the tax season starts 1 August 2020.
What is auto-assessment?
This will be an automatically generated (computer-generated assessment, without any input from the taxpayer) and will be based on the information that SARS would have received from third-parties. This third-party information will include information from employers in the form of IRP5s, information from financial institutions, medical aid certificates, retirement annuity, interest and dividends certificates. SARS will select the taxpayers that will be auto-assessed. They have not said how they will do this, but one would assume that it is a risk-based selection process. We would expect basis, non-complex returns to be selected for this process.
What happens after you are selected for auto-assessment?
SARS will send you a message from 1 August 2020 saying that you have been selected for auto-assessment. You will then be given a chance to accept or decline this assessment. Accepting it means you agree with the return that SARS has prepared for you. It says you are happy that your taxes return is complete and accurate. By complete and accurate, you accept that your return includes all income that accrued to you in the year and that SARS has taken into account all allowable deductions. Will this be the case though?
Should you accept the auto-assessment?
Our view is that you should not accept the auto-assessment because of the risks involved. You may end up paying more taxes than you should pay. You may also end up paying less tax than you should pay. Why would this be so?
- SARS may not be aware of any additional income that may have accrued to you in the year but that you should be declaring on your tax return.
- Because of COVID-19, SARS may not have received all third party information. In other other words, SARS may not have received all your tax certificates from third parties.
- Auto-assessment may not (may fail to pick up all your genuine deductions)include genuine deductions that are due to you. These may include:
- Home office expenses that came up as a result of your working from home during the lockdown.
- Donations where you have received valid Section 18A certificates.
- Other deductions such as wear and tear, and travel expenses.
- SARS may miss and not include additional income from a trade you started in the tax year. You may face penalties and interest later if SARS later discovers that you understated your income on your tax return.
- Qualifying out of pocket medical expenses may also be missed that you should take into account on your tax return.
What should you look out for before accepting or rejecting the auto-assessment?
First, you need to ask yourself if you have received all the relevant and necessary tax information from all third parties. If you are satisfied that you have received all the required documents, you will next need to check the assessment versus what you have received. Check that they have included all your IRP5s, your retirement annuities, medical aid, interest and dividends certificates, capital gains and any other third party certificates.
If you do not have these documents in your personal-data room, contact your employer or financial institutions and ask them to send you these documents.
What happens if you reject the auto-assessment?
If you accept the assessment, you will not have to file a tax return at all. But, if you do not accept the auto-assessment from SARS, you will be required to file as you normally do. This can be done by filing a correction. The submission can be done on eFiling, at a SARS branch or via the SARS eFiling App. You can do this from 1 September 2020.
References:
- https://www.sars.gov.za/Media/MediaReleases/Pages/25-June-2020-Filing-Season-2020.aspx
- https://www.businessinsider.co.za/sars-may-auto-assess-your-tax-returns-2020-6
- https://businesstech.co.za/news/finance/409737/sars-will-start-issuing-auto-assessments-to-taxpayers-later-this-year-heres-how-it-works/
- https://businesstech.co.za/news/finance/414853/sars-will-do-your-tax-filing-for-you-from-next-month-heres-what-you-need-to-know/
- https://www.bowmanslaw.com/insights/tax/taxpayers-beware-sars-auto-assessments/