How to guard yourself against being sued by SARS

How to guard yourself against being sued by SARS

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

Is SARS always right? What if I do not agree with their assessments?

Is SARS always right? What if I do not agree with their assessments?

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: 
  1. 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)
  2. Ensure that you indicate the tax type(s) and tax years that you which to proceed and object
  3. Ensure that you select the items to dispute against by selecting the relevant tick boxes
  4. 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.
  5. 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 you need to know if you are earning foreign income

What you need to know if you are earning foreign income

    • Key takeaway points:

 

    • 1. Before 1 March 2020, all foreign income (as defined) was exempt
    • 2. After 1 March 2020, the exemption is limited to R1.25 million
    • 3. Certain conditions have to be met before the exemption can be applied
    • 4. Independent contractors and individuals who are self-employed are excluded from this exemption.
    • 5. Tax residency is NOT based on Citizenship.
    • 6. You must notify SARS as soon as you cease to be a tax resident.
    • 7. SARS will require certain supporting documents to verify your foreign income and residency status

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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