What should you know about Auto Assessment?

What should you know about Auto Assessment?

What is an auto-assessment?
An auto-assessment is an automatic assessment issued on taxpayers by SARS. This basically means that SARS has collected taxpayer information from their parties (such as medical aid or retirement annuities) and then use this information to file your return and issue an assessment on this return automatically without your involvement.

How will you know if you are auto-assessed? 
You should receive an email or SMS from SARS informing you that you have been selected for auto-assessment. The process started in July 2022. But, this is not the first time SARS has issued an auto-assessment. They also issued these in the 2021 tax year.


What should I do if I receive an auto-assessment? 

SARS says if you agree with the aut0-assessment, you do not have to do anything. However, should you be in disagreement, you have just 40 working days from the date of assessment to file a correction (edited tax return.)


What happens if you miss the 40 days? 

If you do not do anything, SARS assumes you are in agreement with the auto-assessment. The assessment becomes your final assessment at the expiration of the 40 business days.

Can I request an extension? 
If you feel the 40 working days are too little, you can request an extension on eFiling before the 40 days have expired. SARS will require “reasonable” grounds for the request. if you miss the deadline, you will have an additional 21 working days to submit a request for an extension on the same terms. If both 21 and 40 days have passed and you still were not able to submit a correction, you will need to provide “exceptional circumstances” to justify a delayed request for extension.


NOW TO THE BIG QUESTION, SHOULD I ACCEPT THE AUTO-ASSESSMENT? 

We think this is a risky move if (and SARS may not pick up these things on an auto-assessment:)

1. You have qualifying donations you would like to claim

2. You have qualifying out-of-pocket medical aid expenses

3. Your medical aid is being paid for by someone who is not the principal member (normally the person paying for the medical aid would be the one to claim the medical tax credits.)

4. You have capital gains on assets that you sold that fall outside the scope of an auto assessment

5. You are a crypto or share trader

6. You have a side business or rental income (profit or loss)

7. You have and qualify for a home office expense claim (deductions)

8. You would like to claim your business travel kilometres

9. SARS missed one or some of your retirement annuity funds

Contact us:
Was this helpful? Would you like us to do your tax return? Get in touch with us via email (evatax@evacfo.com) or by phone – 021 823 9684

What are the tax implications of trading or buying shares?

What are the tax implications of trading or buying shares?

The tax implication for having shares boil down to two things, whether your gain is income in nature or capital (gain) in nature. Let’s start by defining these two things:


Income: 

Shares held as trading stock are bought mainly for resale at a profit. In other words, any shares held for speculative purposes normally fall under this category. The profits or any gain or loss made on the disposal of such shares (held for-profit/speculative) purposes will be of a revenue nature and will not be subject to capital gains.


Gains of a revenue nature are subject to tax at marginal tax rates that vary between 18% and 45% depending on the circumstances of the taxpayer after taking into account all his/her other income (such as salary, rent, business income e.t.c.) The taxpayer can also deduct expenses directly related to the trading of these shares such as broker fees, transaction fees, subscription to broker news, tools and platforms and any such costs directly related to the trading of these shares.


Capital: 

On the other end of the spectrum, for shares held as a capital asset (that is as a long-term dividend producing investment,) any gains or losses arising from such shares (held for investment/dividend earning) upon disposal will be of a capital nature.


Gains that are of a capital nature are subject to capital gains and at a lower tax rate than gains of a revenue nature. Firstly, you get an exclusion of R40 000 as an individual on your gains. This means that you start paying capital gains tax if your gains exceed R40 000 for a tax year (year of assessment.) This is known as the annual exclusion. For natural persons dying during or after the 2020 tax year of assessment, the exclusion is R300 000.


In addition to the annual exclusion, 40% of the gains are included in taxable income and then taxed as the normal marginal tax rates that apply to your salaries or other income. This 40% is known as the inclusion rate. Assuming that your marginal tax rate is 45% (the highest tax bracket,) the maximum you pay on capital gains is 18% (0.4 x 0.45 = 0.18.)


Yes, you guessed it right, there can be 0% tax on your capital gains when:

  • The sum of capital gain and losses does not exceed the annual exclusion;
  • The sum of capital gain is less than or equal to the sum of capital losses (which means your gains set off against your gains); or
  • Taxable income falls below the level at which normal tax becomes payable, that is if your combined income plus gains fall under the tax-free threshold.

The effective rate (of 18%) we spoke about earlier applies if you fall in the highest tax bracket as an individual taxpayer. The rate is different from that which applies to companies or trusts. Companies and trusts, other than special trusts, pay a higher CGT than natural persons. They do not qualify for the annual exclusion and must include the capital gain at 80% of the gain into their taxable income.  These are the effective tax rates:

  • Companies are at an effective rate of 22.4% which is derived from the 80% inclusion rate and the 28% normal taxes for companies (0.28 x 0.8.)
  • A trust that is not a special trust si at 36% effective tax rate for capital gains (0.45 x 0.8)

What we have done above is the simplest way to look at share-holding. Are things that simple? Not always. The line between gains/losses of a revenue nature or gains of a capital nature can be a bit blurry.


Capital vs revenue: 

When computing your tax liability, the first step is to determine if your gains are capital or revenue in nature. Apart from the three-year rule according to Section 9C (that basically says you must own a share for at least 3 years for your gains to be treated as capital in nature,) the Tax Act itself does not provide objective rules to distinguish between gains of revenue and capital nature. This task has always been left to the courts, which over the years have established some rules for this distinction. So, the onus is on you as the taxpayer to prove that your gains are of a capital or revenue nature.


The most important factor in establishing the nature of your gains is the intention. This is not always an easy task since you can have more than one intention at a time and since intention can change over time. But, the courts have established that the taxpayer evidence as to intention must be tested against the surrounding circumstances of the case. These may include, the frequency of transactions, method of funding and reasons for selling. These may help establish your intention when you bought or sold the shares (Elandsheuwel Farming (Edms) Bpk v SBI.) “If they (the shares) were bought as a long-term investment to produce dividend income, the profit is likely to be of a capital nature. But if the shares were bought for resale at a profit, the profit will be of a revenue nature.”


In SIR v The Trust Bank of Africa Ltd it was established that for a profit to be of a capital nature, “the slightest contemplation of a profitable resale need not be excluded.

Where there were mixed intentions, the dominating intention is the one that establishes intention (COT v Levy.)


Some general guidelines/Principles (source, the SARS guide on tax implications on shares:) 

  • Any profit or loss on disposal of shares will be of a revenue nature if they were purchased for resale as part of a scheme of profit-making (Californian Copper Syndicate (Limited and Reduced) v Harris (Surveyor of Taxes)
  • A profit on the sale of shares is more likely to be of a revenue nature if it was not fortuitous, but designedly sought for and worked for (CIR v Pick ’n Pay Employee Share Purchase Trust )
  • The usual badge of fixed capital investment is that it is acquired for better or for worse, or, relatively speaking, for “keeps”, and will be disposed of only if some unusual, unexpected, or special circumstance, warranting or inducing disposal, supervened (Barnato Holdings Ltd v SIR). 
  • The scale and frequency of share transactions are of major importance, although not conclusive (CIR v Nussbaum).
  • Shares bought for the dominant, main and overriding purpose of securing the highest dividend income possible will be of a capital nature when the profit motive is incidental (CIR v Middelman).
  • Just as an occasional swallow does not make a summer, an occasional sale of shares yielding a profit does not of itself make a seller of shares, a dealer in them (CIR v Middelman).

I do not want to make this a complex matter, so let’s end here. If you need further information or guidance get in touch with me or consult your tax practitioner.

Are you learning anything from this series? Do you want to share any pointers or experiences?

Please leave a comment and remember to share.

How to close a business in South Africa

How to close a business in South Africa

Who should be reading this article? 

  • Anyone whose business is no longer trading and wishes to wind it down
  • Anyone who wants to liquidate their business
  • Anyone who has lost interest in their registered business and now wishes to discontinue it

KEY TAKE AWAY POINTS:

  1. Pay all outstanding creditors
  2. Collect from all debtors if any
  3. Cancel all contracts (ensuring that all the conditions and terms of doing so are understood and taken care off)
  4. Inform all employees and customers of the intention to close down the business
  5. Sell your business assets (including the cars) and stock (if any) or write off any assets or inventory no longer – S basically liquidate the business
  6. The last step would be to distribute any cash or assets that remain in the business
  7. Deregistering at the CIPC
  8. Deregistering with SARS (all tax numbers)

Why may you consider closing a business off?

There are many reasons for this. But, you may consider closing off your business because of any of the following reasons (not limited to this list:)

  • The business was negatively affected by COVID and there is no possibility of the business doing well again in the future
  • The business has become unprofitable and it no longer makes sense to continue operating
  • Your focus or passion has changed and you would like to focus on something else
  • The project for which the business was designed has ended and will not be resuming again in the future
  • The most profitable clients of the business have left and you do not see the business attracting any new clients
  • Changes in technology that drive your product or business out of the market
  • You no longer have the cash flow or working capital to keep the business going

If you are considering closing down your business, the following steps and considerations are important:

1. Have an exit strategy:

Truly speaking, this should happen before there is a need to close down a business. This is because we will all exit from our business one way or the other. Some of the exit reasons are what we have already highlighted above. But, it could also be due to health reasons, death, new investors, a merger or sale of the business or part of the business. Whatever the reason, every business should have an exit and succession plan in place.


Your goal here is to formulate a plan of how you will close down the business or exit from the business. Without a plan, things usually go wrong and you may be caught unaware along the way.


2. Notify your employees:

After your customers, your employees are an important asset to the business. Besides, they have families to feed and lives to live. Leaving it until late may place an unnecessary mental burden on them and leave them with little time to look for alternative employment. As an alternative, use your relationships to find then alternative employment.


But, the important point here is to keep the employees in the loop, not in the dark, about what is going on. Also, decide on who will handle the communications with the employees. It is also important to decide and communicate their terminal benefits and how these will be paid.


3. Notify your clients

It is important to notify your clients in time so that they have time to look for alternative suppliers. Also, you may need to collect anything that they still owe you. It is important that you decide how you will collect and how they will be notified.


4. Collect your outstanding debts

Plan your business closure around your existing collection policies and avoid giving new credit lines to existing or new clients.


You also want to collect any outstanding debts before you close the business because it may become difficult to get payments once you have already closed off the business. Some businesses’ financial policies do not allow payments to individuals.


Avoid announcing that you want to close off your business before you collect outstanding debts because some clients may just stall on payments hoping it will all go away.


You can offer settlement discounts to encourage customers to settle their accounts. An alternative is selling these accounts to a collecting agency.


5. Notify your creditors and pay outstanding debts

Inform your creditors of your decision to close and ensure you have a plan to handle the outstanding debts.

SARS may be one of those creditors. Ensure that you have filed all your returns and that every return is paid for. If you are unable to pay them, there are processes you can follow to ask for a compromise or a repayment plan (Click here to read more about compromises and repayment plans here.)

There may be specific laws on how you may pay your creditors. Ensure you are familiar with these and follow them in settling your creditors. If you are not sure, enlist the services of a lawyer.


6. Sell your business and operating assets 

If you can, package some of the cash-generating units that are still functional and profitable and sell these to interested parties. If this is not possible, you may want to sell the assets in the business including all the inventory, vehicles and other operating assets you may still have if there is a market available for them.


7. Deregister the business

Once you are satisfied that all processes are complete, it is now time to deregister your business with the CIPC. This is to inform the CIPC that your business is no longer in existence.


After this is done, inform SARS that you have deregistered the business. Also, apply to have all tax types (numbers) deregistered. This is to clear you of future tax compliance burden since your business is no longer in existence.


You may contact us if you need help with:

  • Company registrations
  • Tax and VAT registrations
  • Closing off your business
  • Accounting and Tax
  • Business mentorship and advisory

Credit notes under scrutiny, are you complying?

Credit notes under scrutiny, are you complying?

What we have seen now is increased scrutiny of credit notes for compliance with the VAT Act. The main challenge is that in most instances accounting packages being used by businesses do not contain all the information required on a credit note by the VAT Act. It is therefore important that businesses and accountants ensure that credit notes comply with the Act before they are issued and before VAT claims are submitted. Otherwise, it will be difficult for businesses to get back their legitimate VAT claims.


Key elements that must be found on the credit note are the following:

  • Vendor details (names and addresses, VAT registration numbers for both the issuing and receiving party)

  • The words “credit note” must be clearly stated on the document being issued

  • A brief description of the circumstances that gave rise to the credit note. Now this one is critical and what you may find is that some accounting systems do not allow for this. We would encourage you to add this narration to the description part of the credit note.

  • Information sufficient to identify the original transaction to which the credit note relates, that is the original invoice that is being credited. In other words, if someone else who is not familiar with your records comes to check the credit notes, they should be able to trace its origins with ease.

  • It would also be very important to make sure that the correct VAT rate is applied. If the original invoice was issued before the VAT rate changes to 15%, then the credit note should also be at 14%. One cannot claim back more than what they declared.

In more detail and in terms of Section 21(3), of the VAT Act, a credit note must contain the following particulars:

(i) The words “credit note” in a prominent place;


(ii) the name, address and VAT registration number of the vendor;


(iii) the name, address of the recipient. And where the recipient is a registered vendor, the VAT registration number of the recipient;


(iv) the date on which the credit note was issued;


(v) either—
(aa) the amount by which the value of the said supply shown on the tax invoice has been reduced and the amount of the excess tax; or
(bb) where the tax charged in respect of the supply is calculated by applying the tax fraction to the consideration, the amount by which the consideration has been reduced and either the amount of the excess tax or a statement that the reduction includes an amount of tax and the rate of the tax included;


(vi) a brief explanation of the circumstances giving rise to the issuing of the credit note;


(vii) information sufficient to identify the transaction to which the credit note refers;


(b) the actual tax charged in respect of the supply concerned exceeds the tax shown on the tax invoice as charged, the supplier shall provide the recipient with a debit note, containing the following particulars:
(i) The words “debit note” in a prominent place;
(ii) the name, address and VAT registration number of the vendor;
(iii) the name, address and, where the recipient is a registered vendor, the VAT registration number of the recipient, except where the debit note relates to a supply of goods in respect of which a tax invoice contemplated in section 20 (5) was issued;


(iv) the date on which the debit note was issued;


(v) either—
(aa) the amount by which the value of the said supply shown on the tax invoice has been increased and the amount of the additional tax; or
(bb) where the tax charged in respect of the supply is calculated by applying the tax fraction to the consideration, the amount by which the consideration has been increased and either the amount of the additional tax or a statement that the increase includes an amount of tax and the rate of the tax included;


(vi) a brief explanation of the circumstances giving rise to the issuing of the debit note;


(vii) information sufficient to identify the transaction to which the debit note refers:


Provided that—
(A) it shall not be lawful to issue more than one credit note or debit note for the amount of the excess;
(B) if any registered vendor claims to have lost the original credit note or debit note, the supplier or recipient, as the case may be, may provide a copy clearly marked “copy”;
(C) a supplier shall not be required to provide a recipient with a credit note contemplated in paragraph (a) of this subsection in any case where and to the extent that the amount of the excess referred to in that paragraph arises as a result of the recipient taking up a prompt payment discount offered by the supplier if the terms of the prompt payment discount offer are clearly stated on the face of the tax invoice.


Did you just get VAT registered and you need someone to configure your accounting system for VAT? Click here to contact us

How to hold SARS accountable

How to hold SARS accountable

The office of the Tax Ombud was established to act as a bridging gap between SARS and the taxpayer. But, taxpayers do not always have a direct line to connect with the Tax Ombud. A taxpayer may lodge a complaint with the Tax Ombud after they have exhausted all the SARS complaints mechanisms unless they are compelling circumstances for not doing so.  Otherwise, the process below will have to be followed:


There are three ways through which one can lodge a complaint with SARS:

  1. Via eFiling. See the step-by-step guide on how to lodge a complaint via 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.
  2. 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
  3. By calling the SARS Complaints Management office (CMO) on 0860 12 12 16.

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 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.


Try again: 

Sometimes, a complaint lodged on eFiling may be rejected for one reason or the other. If you feel you have a  compelling case, pick up the phone and call the CMO so that they may record and lodge the complaints on your behalf. You may also call them if you are not sure how the process works on eFiling or if you are too far from a SARS office. For example, I once lodged a complaint about a delayed refund (because refunds should be paid 7 workings days after verification or audit is finalised) but the system kicked me out and rejected my complaint. The complaint was successfully lodged after calling the CMO.


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. Below is an example of client folders that tax practitioners or individuals can use:


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.


 

Are you frustrated with the way SARS has handled your affairs? How can we help you? Click here to contact us

How to avoid or reduce the risk of a SARS audit

How to avoid or reduce the risk of a SARS audit

By now we all know that SARS is looking to raise more tax revenue to make up for revenue collection shortfalls. This means SARS may and will do all they can to increase revenue collections.


It will not be surprising to find that SARS audit teams will target taxpayers in order to raise additional income. Besides, their systems are designed to pick up “discrepancies” on a taxpayers’ return and these can easily trigger an audit. So do not be surprised if, a few days after submitting, you get a notification from SARS saying you’ve been selected to submit your supporting documentation for inspection or even that you have been selected for a full audit.


At Eva Financial Solutions, we have a team of dedicated and diligent tax practitioners working around the clock to ensure that you do not pay a single cent more that what you should legally pay over to SARS. We have designed our internal processes, checks and balances to ensure that, even if the audit comes, our clients can avoid an audit or the process goes smoothly without causing them unnecessary emotional stress.


Here are a few tips:
  • Always ensure that your tax affairs are up to date and that you have filed all tax returns as they fall due.

  • SARS has now made it easy to check your tax compliance status online. You should always check that your tax status is green (compliant). Once you have picked up that you are not compliant seek to address the issues sooner rather than later or consult your tax practitioner for help.

  • You should always come clean with the taxman before being audited. Once the audit has started, you are prevented from claiming the relief under section 227 of the TAA for coming clean.

  • Before you submit your return, ensure that you have all supporting documents for every income and deductions on your return. If you kept a personal data room, by the time your return is due you would have gathered all the necessary supporting documents for your tax return (Medical aid, Travel logbooks, Interest and Dividends certificates etc.).  Be warned, do not convince yourself that if you ignore SARS’ requests for documents long enough, it will just go away. Always have your house in order.

  • If you own and run a business as a sole proprietor or have a rental property, ensure that you do not include and deduct your personal expenses.

  • Chances are that an ordinary taxpayer will struggle to interpret various tax laws or will misinterpret certain SARS requests or requirements. Therefore, always use the services of a reputable tax practitioner or accounting firm. Eva Financial Solutions can assist you in this regard, contact them if you cannot get your own personal tax practitioner.

  • After submitting your return log into (or at least ask your tax practitioner to do so) SARS at least a few more time to check if SARS hasn’t issued any sneaky notifications that require your attention. If your email address and not that of your tax practitioner is linked to your profile, alert your tax practitioner if and when you receive any kind of notification from SARS.

When it comes to VAT, these tips might be helpful:

  • When you get VAT registered ensure that you have sent your VAT number to all your suppliers so that they may update their databases and add your VAT numbers onto your invoices.

  • Insist on getting a valid tax invoice from all your suppliers. When you receive a tax invoice, check that it meets all the requirements of a valid tax invoice

  • Check that the new VAT rate of 15%, and that the total price (including VAT) is correctly calculated before accepting the invoice/quote.

  • Before you submit your VAT return:
    • Check that you have claimed only where you are supposed to claim VAT (for example, you may not claim on motor car (passenger vehicle) rental or entertainment expenses as defined and other zero-rated or tax-exempt supplies.

    • Check that you have applied the correct tax types/rates to each transaction, for example, Zero-rated sales cannot be classified as tax-exempt. Ensure that each tax type is correctly populated on the VAT201 return.

    • Check that you have declared all standard rated sales (Sales VAT at 15%) that you should have declared and have done so using the correct VAT tax rate.

    • Perform turnover VAT reconciliation at each VAT return submission. This will always ensure that your income statement turnover matches your VAT return submission. This will also reduce the risk of an IT14SD and the time it may have to take you if you did this only because SARS asked you to do an IT14SD. Remember, SARS systems are designed to pick up discrepancies between your VAT return submissions and your annual income tax return turnover.

    • Before you hit submit, ensure that the VAT201 is correctly populated and the amounts contained are correct and matches your now correct VAT reports. Remember, once submitted you can only increase not reduce the amount payable.

    • Take care that cash register slips and tax invoices issued from 1 April 2018 reflect the correct VAT rate. This will generally be 15% unless a specific time of supply rule or a rate specific rule applies.

    • VAT vendors issuing debit or credit notes from 1 April 2018 must ascertain that the correct VAT rate is reflected and applied when determining the VAT amount. Debit or credit notes will generally reflect the old VAT rate of 14% where it relates to supplies of goods or services before 1 April 2018, subject to certain exceptions. Similarly, debit or credit notes relating to supplies made after 1 April 2018 must reflect the new rate of 15%.

    • If your accounting systems allow, ensure that you immediately lock the submitted periods so that no further changes are effected to a closed VAT period.

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Owing SARS, what are your options?

Owing SARS, what are your options?

If you follow my posts, you would have come across one of my articles that dealt with the approach SARS has taken to deal with the non-submission of a tax return. This is a follow up to this article.


So now you read that SARS will prosecute you for non-submission and charge you an R5 600 fine if convicted (of course, you will be convicted because there is overwhelming evidence against you/your company that you did not submit a few tax/vat returns.) You then went on to submit all your outstanding returns but you now owe SARS large sums of money.


Taxpayers are required to be fully compliant in all their tax matters by submitting and paying their taxes on time. If taxpayers are not compliant or have outstanding tax debt the SARS Debt Management department is committed to assisting businesses and individuals to become fully compliant. There are a few avenues that SARS uses to assist in this regard.


How much do I owe?

If you are not 100% certain how much you owe SARS, you will need to contact their call centre to enquire about your outstanding balances. If you stay not far away from a SARS branch, a visit to the SARS branch would not kill you. When you visit, just ensure you have all your particulars with you to avoid being turned away. Lastly, if you were registered for e-filing, run a statement of account to see how much you owe SARS. Your next step is to make the outstanding payment to SARS. Contact SARS or your tax practitioner to help you load a payment that can then be released from your bank account.

What if I can’t pay the outstanding amount now?

Every taxpayer must be aware that it is best practice to always file a tax return on time in order to avoid penalties and interest. But, if you are currently unable to pay your taxes, please contact SARS without delay. The following options may be available to you:


  1. Payment arrangements: 

Under certain circumstances, SARS can reach an agreement with a taxpayer to defer a tax debt for later payment or for payment by instalments. A deferred payment arrangement is s when a taxpayer can not settle the full amount owing to SARS immediately and want to apply for a payment plan to settle the debt. Under this option:


  • SARS has the option to decline the request.
  • Interest will accrue on any unpaid debt.
  • If you don’t adhere to the conditions of the payment arrangement the payment agreement will be terminated and normal collection proceedings will resume.
  • The taxpayer must suffer from a deficiency of assets or liquidity, which is reasonably certain to be remedied in the future.
  • Notwithstanding this deficiency, the taxpayer must anticipate that there will be income or other receipts which can be used to satisfy the tax debt.
  • At the time of concluding the agreement, the prospects of collecting the tax debt must be poor or uneconomical, but likely to improve in the future.
  • Moreover, the deferral should not prejudice the collection of the tax debt

2. Compromise agreement:

In certain circumstances, a compromise may be requested on taxpayers’ outstanding tax debt. A SARS Debt Compromise is a process whereby a taxpayer requests that SARS permanently “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 as may be imposed by SARS.


A compromise cannot be considered if the taxpayer disputes the debt. Therefore while a matter is under objection or appeal, a compromise cannot be considered. If the taxpayer wants to compromise he has to withdraw his objection or appeal.


What if you do not agree with the debt? 

If you are not in agreement with your tax debt, you may lodge a dispute.  To lodge a dispute please go to objections and appeals. Even though you are disputing the tax debt you remain under obligation to pay the debt whilst your dispute is being handled.

Why you should consult Eva Financial Solutions if you need a debt arrangement or compromise
  • We deliver on our promise
  • Compromise solutions are difficult to obtain
  • For this reason, it is important that it is handled by qualified and dedicated tax practitioners.
  • We have a team of experts who will always work to get the best result.
  • Click here to contact us

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

How to pay for your house (bond) quicker

How to pay for your house (bond) quicker

Do you want to know how to get fewer years to pay off your first property or how to pay for it quicker? Let’s look at a few ways through which you can do this, pay off your mortgage quicker. For this article, we will assume the property you want will cost R1000 000. We will also assume the repayment term to be 20 years straight without any reduction tactics.


  1. Raise a deposit:

This is the most important first step. Saving for a deposit will work in your favour because it can serve as an indication to the bank that you are a good personal finance manager. It also reduces your credit risk and exposure and makes it easier for banks to fund your first house.


Lets’s look at what the numbers will look like without a deposit:


  • Your monthly instalment will be R7752 over 20 years
  • This means, at the current interest rates, your total interest will be R860 480 by the time you finish paying for this bond in 2040.

Who covers the bond and transfer costs:

Another issue to consider here is that your first property will have transfer and bond registration fees. If you do not have a deposit, assuming your first property is R1 million, then you are looking at an additional cost of R55 712 in both transfer and bond costs. If you do not have any cash savings to cover this, you are more likely going to ask the bank to cover this as well. How does this change the numbers?

  • Your initial capital outlay increases from R1 million to R1 055 712
  • Your monthly instalment increases to R8 200
  • Your total interest over the 20 years increases to R910 288

2. What if you raised a deposit?

Lets’ assume you can raise a 10% deposit, that is R100 000 of the purchase price. Without complicating the maths with bond and transfer fees, you have already managed to reduce your loan amount to R900 000:


  • Your instalment falls from R7 752 to R6 977 monthly
  • You have also now managed to reduce your total interest over the 20 years to R774 480

So, you can already see how the deposit can help you to be able to qualify for a home loan more than when you did not have a deposit.


3. Negotiate the price:

You can also negotiate the price or buy directly from the seller without having to go through an agent. From personal experiences, I have noticed that most agents will increase the selling price by between 6 and 10% of what the seller is asking for. So, when you put your offer, assuming you will be the first one and the seller accepts, put an offer that is between 6 and 10% lower than what the agents told you the house is worth.


The reason for this is because the agents are not your friends. They are in the business of making money through commission and they might want the owner to still get what your actual offer would have been after the agent’s commission.


Assuming the same examples as above, and assuming you have been able to negotiate the price by 10%, this is what the numbers would look like:

  • Your purchase price is now R900 000.
  • Because you raised a deposit of R100 000, your initial loan amount is R800 000
  • Your monthly instalment falls to R6 202 as compared to the original R7 752
  • Your interest is now R688 480. What a saving on interest!

4. Negotiate the interest rate:

In the book “Is your thinking keeping you poor,” Douglas Krugger talks about the concept of being able to represent your interest. One example he gives is that of an employer and employee. He asks whether we negotiate employment contracts with employers before we start working. If we do not, he urges us to do so because a contract is just a document that documents the interests of two parties. It is in our best interests to negotiate the terms of the contract that represents our interest.


The same concept should apply to negotiate for interest with the bank. The interest rate you see on those papers is in the banks’ best interests. What is your best interest? It is in your best interest to negotiate a better interest rate with your bank. I negotiate a minus 0.5% on my first house. I am sure you can do the same.


If this sounds like a huge mountain for you to climb, apply to a few banks and use the results of your application for negotiating with the banks to get the best interest rate you can get.


5. Pay extra if you can:

In this article, I referred to some advice I received from my property mentor, let me repeat it here for the benefit of those that have not seen this article yet:

  • If you have a high-value vehicle, sell it and put the money into your bond.
  • If you pick up even a ten-cent coin, put it into your bond.
  • Pay your bond as quickly as possible and get onto your next property, preferably within 5 years.
  • If you are renting out your property, make it unique and different from other properties in your location so that you always have tenants and tenants who are willing to pay for whatever you ask for.

Why is this so? Interest on your bond is calculated daily. So, whatever you put into your bond works in your favour by reducing the interest. If you can, and because interest rates are low right now, pay more into your bond as much as you can.


6. Are you self employed?

If you are self-employed, you might have already noticed that it is more difficult for you to qualify for a bond than it is for your employees. My advice for you is this simple, take a salary(have a payslip for it) from your company/business consistently and make sure this salary lands in your account on the same day every month. Secondly, your business and you are two different people. Do not treat your business as your second personal bank account.


7. Emergency fund:

The pandemic has reminded us how important emergency funds or excess funds in our bond accounts are. Most of us had to negotiate for a payment holiday because we did not have an emergency fund or any funds available in our bond accounts. What was the effect of this? Had it not been for the reduction in the interest rates, loan balances and instalments increased. This also implied more interest until the end of the bond because interest rates will not remain this low forever.


Let’s get talking:

  • What have you found a challenge when it comes to qualifying for a bond?
  • What other tactics have you used to pay off your bond quicker?

Drop a comment in the comment section. I reply to all comments. And even better, others can also cheap in and help. We are all about sharing ideas that can make us grow together.

What happens if you do not pay VAT on time?

What happens if you do not pay VAT on time?

Introduction: 

The past few months and weeks have been difficult for businesses in terms of cash flow management. This is due to the COVID-19, the lockdown and the uncertainty around the whole thing. When does the lockdown end, will it be extended again? How long will the COVID-19 pandemic last and what is the impact on a business’ cash reserves?


As month-end approaches, some businesses are wondering if they should pay their VAT obligations or if they should delay these a bit until their businesses have recovered cash wise.


In terms of the VAT Act, a registered vendor is required to submit their VAT returns and to pay their VAT taxes by the 25th of the month if they are submitting manually or the last day of the month if they are submitting online on eFiling. If these dates fall on a weekend or public holiday, the submission and payment have to be made on a day before the weekend.


As far as we all know, the government has not introduced any relief measures as far as VAT is concerned. This means that SARS is expecting your VAT returns at the end of the month.


What happens if you are unable to submit or submit but unable to pay? 

The VAT Act (section 39) and the Tax Administration Act (TAA, Section 187 and Section 4) provides for the interest application and treatment where a taxpayer fails to submit or pay a VAT return.

If you are unable to submit, SARS immediately levies a 10% penalty on the amount that was due.

If you are able to submit, but unable to pay, SARS will levy interest on the outstanding amount from the date the tax debt was due until the date the debt is paid off.

So, if you failed to submit and pay the punishment is two-fold. A 10% penalty and interest that is charged on a daily basis at the prescribed interest rate until the debt is paid off.

A question that arises is what happens should a vendor fail to submit a VAT return and have a “valid” reason for failing to submit and pay a VAT return?


What happens if you fail to submit? 

At the onset, we must point out that in terms of Section 234(d) of the Tax Administration Act, it is a criminal offence to fail or neglect to submit a return. So, if a taxpayer is to fail to submit a VAT return, there it has to be proven that there were circumstances beyond the vendor’s control that resulted in him/her not being able to submit or pay a VAT return. In terms of TAA section 187(7) these circumstances are limited to:

  • a natural or human-made disaster;
  • a civil disturbance or disruption in services; or
  • a serious illness or accident.

So, unless you can prove these things your return and payment remains due and payable at the end of the month.


Can the penalty and interest ever be waived? 

Section 187(6) provides that the interest can be waived (directed that so much of the interest as is attributable to the circumstances is not payable by the taxpayer) if a senior SARS official is satisfied that interest payable by a taxpayer is payable as a result of circumstances beyond the taxpayer’s control. The circumstances are covered above.


What are your options if you cannot pay your VAT taxes when they fall due? 

If your business is in a situation where you do not know if you should pay your VAT or not due to COVID-19 or lockdown, do some scenario planning before your VAT payments become due bearing in mind the penalties and interest that may hit you if you do not submit or pay in time. The three scenarios you can look at are:

  1. What happens to your business’s cash flow for the next three months if you pay the 100% VAt due without delay
  2. What happens if you pay a portion of it when the payment becomes due
  3. What happens if you delay the payment completely and pay in a month or two.

The second option is to submit your return and apply for a repayment plan with SARS.

The third option is to apply for business continuity relief plans the government has unveiled for SMMEs.

The fourth option is to get a VAT payment loan.


How to avoid a similar problem in the future: 

It is in your best interests to avoid repeat late submission and payment of VAT. Continually failing to pay your VAT may lead to your business going under. You act as an agent for SARS in collecting the 15% VAT. If your clients are paying you, there is no reason why you should not be able to pay VAT because technically that money does not belong to you. If your clients are paying you late, then you need to be looking at your debtor management systems and processes.


You do not want to make late payment a recurring problem. You may want to consider some of the following general measures:

  • Open a separate business VAT savings account.
  • Whenever an invoice is paid, put aside the 15% into this savings account.
  • Implement cash flow management tools and means that ensures you are always paid on time.
  • If you have retainer clients, switch them over to debit orders instead of waiting for them to do EFT.
  • Include a payment method when sending out invoices. Invoices that have a payment method tend to be paid much quicker.
  •  Do you have any asset that you no longer use or that you are under-utilising? Do you think these can be sold if there is a market for them?

How can we help? 

Contact or call me on 078 361 5200 for:

  • VAT registrations
  • Online VAT registrations
  • Cash flow management
  • SARS debt repayment plans
  • VAT audits
  • VAT submissions

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