Foreign income exemption Archives

KEY TAKEAWAY POINTS:

SARS has 21 business days to complete a verification
They may finalise it with or without changes
If they take more than 21 business days, you have a right to lodge a complaint
If nothing happens, you may take the matter up with the office of the tax ombud
Remember to keep a proper track record of the matter and/or any follow-ups you make on the matter
In this article, we discuss what verification is, what to do when you are selected for verification and if SARS does not bother to get back to you on time.

INTRODUCTION:

SARS has capacity issues that they are working hard to resolve, But, it seems this 2021 tax season they took more than what they can handle.

We have observed many taxpayers who have been selected for verification but who have not heard back from SARS many days after the verification was initiated. Under normal circumstances, SARS has up to 21 working days to finalise a verification and issue a finalisation letter and/or final or adjusted assessment.

In one case we have looked at, for example, the taxpayer who was selected for verification on 29 July 2021 has not heard back from SARS even at the time of writing this article. We are certain, she is not alone in this.

Let’s look at some important definitions before we can consider what one must do if SARS takes their time on the verifications.

What is verification?

Being selected for an audit and verification are two different processes. With a verification, SARS is doing a face value verification of the information declared by the taxpayer on the declaration or in a return. This involves the comparison of the information on the return against the financial and accounting records and/or other supporting documents. All this is to ensure that the declaration/return is a fair and accurate representation of the taxpayer’s tax position. (Remember, in terms of the Tax Administration Act, the onus is on the taxpayer to provide supporting documentation to prove that the deductions and information on their declaration are reasonable, fair and accurate.)

Who can be selected for verification?

Any taxpayers can be selected for a verification process for the proper administration of tax. The selection can also be done on a risk basis. What should you do if you are selected for verification?

What should you do if I am selected for verification?

SARS will notify the taxpayer if they have selected them for verification. The letter issued will state what the taxpayer must do or provide to SARS. The letter will also notify the taxpayer to check their tax return and to make any corrections if there are any discrepancies on their tax return. The taxpayer will be given 21 business days from the date of the letter in which to provide the supporting documents and schedules. These documents and schedules can be submitted via eFiling or SARS support documents portals.

During the verification, you can expect to get another letter requesting additional information if the relevant material initially supplied was not sufficient to finalize the verification. If you are due for a refund, you may not get this until the verification process is finalised.

What happens if you do not respond to the verification?

It is always important to keep an eye out for SARS correspondences on your email or eFiling. Normally SARS sends you a message and email when they have issued important notices.

If you choose not to respond SARS may:

Issue a second letter reminding you to submit relevant information
Issue a final request for relevant information
If you still do not respond, a SARS official will contact you telephonically and request that you submit the necessary relevant material within 5 business days.
Should you still not respond, SARS may raise an assessment based on information readily available or obtain from a third party.

Now let’s consider what your options are if SARS ghosts you.

What if you have complied/responded but SARS takes all the time in the world on the verification?

There is the office of the tax ombud that can help with operational issues. But, it does not get involved before you have exhausted all internal SARS complaints mechanisms. You can only go directly to the office of the tax ombud only if there are compelling reasons to do so.

So, the first step to take is to complain to the SARS complaints office. To do so, you must be sure that the matter is now outside the normal service period, as in the example we have earlier about the taxpayer who was selected for verification on 20 July and has not yet back from SARS ever since.

There are three ways through which one can complain with SARS:

Via eFiling. See the step-by-step guide on how to complain eFiling. Please note that you have to be registered on eFiling to be able to do this. You may not download or print the form to send it by any other means. You must also have a valid case number to which your complaint relates.
By visiting the branch. If you do, you may need to ensure that you have spoken to all relevant higher people before you leave the branch. Due to covid, you may need to make an online appointment.
By calling the SARS Complaints Management office (CMO) on 0860 12 12 16.

Do not call the call normal call centre and say you are following up on an unresolved matter, the call centre agents may just “escalate” your case and normally that achieves very little. If your complaint is not resolved after 21 working days, you may take the matter to the office of the tax ombud.

Here are a few tips on winning the battle against SARS poor service/administrative issues and making sure you have a winnable case when you approach them or the Tax Ombud:

Be specific:

If you have a complaint, it is better to call the Complaints Management Office (CMO.) If you call the SARS contact centre to get a reference number, specify that it is a complaint with a complaint, specify that it is a complaint and not a follow-up. If you keep calling the call centre and saying you are following up, it may remain just that, a follow-up. You need to specify that you have a complaint so that it is treated as one. Some complaints will need case numbers, make sure you call the contact centre to get one.

Build a compelling case:

The most important thing to do when dealing with SARS is to build a good case, this is whether you are raising a complaint, an appeal or an objection. You will need a system to record your interactions with SARS (at each touchpoint with them). You also need to store documents and supporting documents relevant to the taxpayer’s case. The system of recording your interactions with SARS should allow you to build a timeline of how the case is developed and to ensure that you have all the documents you need for this case.

One such system is to make sure each client file/folder contains relevant subfolders that will help you gather the important and necessary information. The other is to build a dashboard that records the timeline and communications with SARS. This can take any form, for example, Word or Google docs, a task management tool like Asana, Trello or Monday.com.

NB: You do not do this because something has gone wrong, but because things may go wrong and often they do go wrong, but because things may go wrong.

The advantage of doing things this way is that you will save yourself a lot of time when doing the actual complaint, even an appeal or objection. The Tax Ombud form will ask you to summary your case in chronological order. So, if you had been building a case over time, this process will be a breeze. You have all the facts and timeline at your fingertips.

Do you need help with your SARS matters? Contact us here

Since April 2018, SARS has been cracking down on non-complying taxpayers in filing their tax return. Since April, SARS has successfully prosecuted and convicted 10 taxpayers for failing to submit their outstanding tax return. Among these people is prominent soccer player, Teko Modise. Most of you would have also read about the socialite Bonang being dragged to court by SARS over non-compliance.

In terms of the Tax Administration Act, the following are viewed as criminal offences:

Avoiding paying taxes
Not submitting tax returns
Failure to submit information to SARS
Submitting false information to SARS
Giving an incorrect answer to SARS, whether in writing or orally
Failing or neglecting to register or failure to notify SARS of changes in registered particulars
Issuing an erroneous, incomplete or false document required under a tax Act

Here are a few tips to guard against being sued by SARS:

Appoint a tax practitioner:

Tax laws and requirements are constantly changing. Each year new laws are introduced. It is hard to keep up to date with these changes if you are non-tax experts. It is advisable to appoint tax practitioners to always advise you on tax-related matters and to submit the tax return for you in terms of the relevant laws. This will save you the costs of objections and “fighting” with SARS.

Always check your tax compliance status and inbox:

One should regularly check their tax compliance status, which is a platform that gives an indication of whether one’s tax affairs are in order.

Your tax compliance profile should be green in all aspects as per the above image. The minute any of those tabs turn red, something has gone wrong with your tax affairs. You should immediately investigate and address these issues. SARS will also often send you a notification when your tax compliance status changes. When you receive this, immediately investigate and resolve it. If you hired a tax practitioner, you must also immediately notify them so that they can investigate and help you to resolve these identified issues.

Do not miss a return submission:

You must always submit all your tax return where you are required to do so. Missing a tax return is a criminal offence and may land you in trouble. There are few instances where one may not be required to submit a tax return. If in doubt about whether or not you need to submit one, consult with your tax practitioner/professional. Generally, only people who meet the four below criteria do not have to submit an income tax:

– Your total employment income/salary for the year is not more than R350 000

– You only received employment income/salary for the full year of assessment from one employer.

– You have no car allowance/company car/ travel allowance or other income (e.g. interest or rental income).

– You are not claiming tax related deductions/rebates (e.g. medical expenses, retirement annuity contributions other than pension contributions made by your employer, travel).

Keep and submit supporting documents:

One must always ensure that for everything on their tax return, there is a valid supporting document. Constantly check your inbox to ensure that you respond to request for supporting documents by SARS. SARS is becoming quite strict with these. So, ensure that you have proper and valid supporting documents for your tax return.

Be truthful and honest:

Remember, there is a difference between tax avoidance and tax optimisation. Tax avoidance is a criminal offence in terms of the Tax Administration Act and can land you in big trouble. When submitting your tax return, ensure that you have honestly done so. Declare all income that accrued to you in that tax year (salaries, rental income, commission and other incomes). In terms of expenses, you must take care not to include personal or expenses of a capital nature. As an example, personal groceries or drawings will not be allowed as deductions and should not form part of your deductions. Similarly, if you are in the business or renting cars or accommodation, the capital repayments on the car or property cannot be deducted as business expenses. If you have a home office, you may not claim your entire house’s rental expense.

For home office expenses, one would need to work out the total square meterage of the home office in relation to the total square meterage of the house, and then convert this to a percentage. One then applies this percentage to the home office expenditure in order to calculate the portion, which is deductible.

Conclusion:

It is a criminal offence not to submit a tax return. Late submission of a tax return also has huge consequences. Submitting late can attract penalties, interests and administrative penalties, which can range from R250 to R16 000 per month. If you have a couple of outstanding returns, this is when SARS can get the NPA involved leading to an individual’s case being heard before the court.

Do you or your business need help to comply with tax laws or SARS? Click here to contact us

Many of us see SARS as that horrible master who just wants to take our money at every opportunity possible, and it’s money they didn’t even work for. Sometimes you look at an assessment and you even wonder what they are trying to do. Maybe they even issue an assessment and go on to recover monies owed by you by issuing an instruction to your bank to deduct whatever they feel is due to them. If this happens, what are your options?

Once the Revenue Authority issues an assessment on your tax return and they have issued a notification for the tax payable or refundable under your tax return, you can:

Choose to accept the assessment
Ask for reasons as to how SARS arrived at the issued assessment. This must be done within 30 days from the date of the assessment
You can choose to lodge an objection within 30 business days from the date the assessment is issued or within 30 business days after receiving the reasons on how SARS arrived at its assessment

SARS has a detailed guide on how you may file a notice of objection. However, I would advise that you consult a professional tax practitioner to assist you:

Ascertain if SARS’ assessment is correct
Determine if the relevant tax laws were applied correctly
Correctly lodge a Notice of objection on your behalf

Tips to get your objection right:

Ensure that you have all the supporting documents for the amounts you are objection to justify your reasons for objecting to the assessment. (For example, if you believe SARS missed your Medical Aid contributions, then you must have the supporting medical aid certificate when you lodge your objections)
Ensure that you indicate the tax type(s) and tax years that you which to proceed and object
Ensure that you select the items to dispute against by selecting the relevant tick boxes
Ensure you have selected the correct source codes/ transaction code of the disputed item is displayed. It is important that you get the correct source codes as SARS may reject the Objection based on the fact that you put an incorrect code even though the objection is on valid grounds.
Watch that you distinguish between dispute amount and requested amount. Again, SARS may turn back your objection if the distinction between these two is not shown. The disputed amount is the amount that has been charged for interest or penalties for late payment are displayed. The requested amount indicate what you believe the amount should be. This is important because if this amount and the amount above are the same, SARS will reject the NOO on that technicality.

An objection that does not comply with the rules of objections and the Tax Administration Act may be disallowed. In terms of the rules, you may submit a revised objection within 20 days of receipt of the notice of invalidity by SARS

If the objection is disallowed, you may elect to accept the outcome or appeal against the decision. If you elect to appeal the outcome, then you may elect to take the Alternative Dispute Resolution (ADR) route or the litigation route (via the tax board if less than R1 million or the tax court in all other cases).

You can initiate ADR by indicating that you wish to make use of the ADR process in your notice of appeal. Within 30 business days of your notice of appeal, SARS will inform you whether the matter is suitable for an ADR process. The ADR process must be concluded within 90 days.

If the dispute is resolved between you and SARS, it must be recorded and signed by you and a SARS representative. A settlement agreement must be approved by a senior SARS official. SARS will issue, where necessary, a revised assessment to give effect to the agreement reached by ADR. If the dispute is not resolved by ADR you may continue to appeal to the Tax Board, if the tax in dispute is below R1000 000, or the Tax Court.

Again, I want to stress out the need to consult a professional Tax Practitioner to assist you with this process. if you have gone through all these processes and have now won your case against SARS (where SARS issued unnecessary assessment without proper foundation), may you recover wasted costs incurred (consultations with lawyers and tax practitioners or accountants fees) through the unnecessary conduct of SARS officials?

The decision to use the services of professionals rests on the taxpayer. However, it goes without saying that the complexity of tax laws and regulations renders it necessary for one to consult with tax lawyers, accountants and tax practitioners. Currently, there is no formal authority covering whether taxpayers can recover their costs from SARS. But, practices in other tax jurisdictions allows taxpayers to recover damages in cases where they have suffered financial losses due to the conduct of the revenue authorities. In South Africa damages may be awarded by a competent court if the taxpayer can prove that he/she suffered financial loss as a result of the conduct of SARS.

What is foreign income exemption?
“Section 10(1)(o)(ii) provides for an exemption for foreign employment income received for services rendered outside South Africa, provided the requirements are met.”

Before 1 March 2020, if all conditions were met, the entire income was exempt.

The conditions include:

1. Be a tax resident of South Africa
2. Earn certain types of income (such as salary, taxable benefits, leave pay, Wage, overtime pay, bonus, gratuity, Commission, Fee, emolument, allowances including travel and advances, amounts received in respect of share vesting…)
3. In respect of services rendered by way of employment
4. Outside South Africa
5. During specified qualifying periods (see paragraphs that follow)
6. Have a formal employment contract (with a resident or non-resident employer)

Since 1 March 2020, the exemption is limited to R1.25 million if the conditions are met. Any remuneration received in excess of R1.25 million will be subject to normal tax rules in South Africa. Before 1 March 2020, the income would have been exempt if all conditions were met.

You must file your tax return even when you qualify for this exemption and the qualifying income must be declared under the relevant SARS codes.

Who is a tax resident?
Citizenship does not define tax residency. A tax resident is a person who is ordinarily resident or becomes a resident by way of a physical presence test, which requires one to be in SA for a certain period of time to be considered a tax resident. If you do not want to be a tax resident, your option is to financially emigrate However, emigration alone does not remove the residency status as the physical presence test may still be applied to determine your tax residency status.

You must notify SARS as soon as you cease to be a tax resident.

The physical presence test:

This is a calculation of the actual amount of time you physically spend in SA. You are considered a SA tax resident if you meet all of the criteria below:

1. 91 days in South Africa in the current year of assessment, and
2. 91 days or more in each of the preceding five years of assessment, and
3. 915 days in total during those five preceding years of assessment.

You fail the physical presence test if you fail to meet any one of the above criteria.

What are the qualifying periods?

An employee must be outside South Africa for certain periods to qualify for the exemption:

1. A period not exceeding 183 full days (in total) during
2. Any 12 month period (not a calendar year or a tax season) and
3. A continuous period exceeding full and unbroken 60 days during that 12 month period

Who does not qualify for this exemption?

1.Independent contractors
2. People who are self-employed
3. A public office holder appointed or deemed to be appointed under an Act of Parliament
4. Employees who are employed in the national, provincial or local sphere of government, certain constitutional institutions, national and provincial public entities and municipal entities.

Supporting documents required by SARS:

1. Spreadsheet showing number of days in and out of SA
2. Copy of your passport showing days in and out of SA
3. Letter from your employer stating you’re allowed to work overseas (and for what periods), plus what amount was earned during that period
4. Foreign/ex-pat assignment employment contract
5. IRP5 showing foreign employment income earned (e.g source code 3651, 3653, 3655, etc.

We hope this was helpful. If you have any questions, feel free to use the comments section below or contact us here.

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