Not many people would be comfortable talking about tax. In fact, most would be more comfortable talking about death than tax issues. I was talking to someone today and he says to me, “Just hearing about SARS/tax, receiving a text message or email from SARS sends shock waves through my whole body!” I doubt he is alone in this. Many of us do feel the same way. The question is what should we be doing to make sure we minimise our tax risks, whether as individual taxpayers or as tax practitioners in practice.
Simply put, risk is what could go wrong. A lot can go wrong in as far as tax matters are concerned. Here are a few examples:
- Penalties and interest due to non-compliance.
- Committing tax offences,
- Some of which may lead to a criminal record, conviction, fine and/or jail time.
Some of these offences may include, but not limited to:
- Failure to notify SARS of an address change
- Failure to submit a tax return
- Failure to disclose complete and accurate income
Given that SARS has a complicated system, one that can easily detect any form of non-compliance and fraud (tax risk), it is important that one takes steps to manage their own tax. The question of what could go wrong can best be answered by looking at how one can manage their tax risk.
Steps to manage individuals’ taxpayer tax risk:
- Tax laws change regularly. It is often difficult for an ordinary taxpayer to keep up with these changes. For a medium to complex tax return, make use of a tax expert/tax practitioner. The fees you avoid doing a tax return on your own could outweigh the cost of trying to get things right again.
- Change your attitude towards submission of tax returns. You are a citizen/resident of this country. You owe it to the nation to contribute to its fiscus and service delivery.
- Maintain proper records of your tax matters. One of the biggest challenges when dealing with objections and disputes is the lack of proper records and supporting documents. Ensure you keep proper records and that you keep your documents for at least 5 years. If you feel that your supporting documents will fade over time, have an electronic backup.
- Gather your tax documents during the course of the year. Also, maintain your accounting (income and expenses, including for rental properties) records on a more regular basis. Do not wait until the end of the tax year to start putting everything together.
- Ensure that the tax expert/practitioner you are using is themselves tax compliant.
- Ensure that your tax practitioner is registered with a controlling body and they are still registered as tax practitioner with SARS.
- Do not offer your tax practitioner fees based on the outcome of your tax refund. This exposes you to the risk that your income may be understated in order to secure a higher refund. This is tax evasion and a tax offence.
- Always start early, do not wait until the final day of the season to start submitting your return. A lot can go wrong on the last day. Banks may fail to process your payment on time. Eskom could decide to cut power off just when you were about to hit “submit.” As a result you are out of Internet connection or power because your laptop is like a fridge that need to be plugged in the whole time in order for it to work.
- If you have other income apart from your salary, then you are a provisional taxpayer. Do not wait to only submit and pay when the tax season opens. Submit and pay your provisional tax when it is due (Aug and Feb of each year.)
Steps to manage tax practitioner tax risk:
- Calculate your fees and profits in advance before the tax season starts. Ensure that you are charging the right amount for the submission of tax returns. Remember, you may still be required to submit supporting documents, and maybe still object etc.
- Make sure you are familiar with the SARS eFiling terms and conditions
- Ensure that you have transferred the tax risk to the taxpayer by making sure you have a signed mandate/engagement letter that cover the important elements of tax risk for you as the tax practitioner
- Start writing to clients and request information relating to the 2019 tax submissions
- Do not submit a clients tax return from their eFiling profile
- For payments, do not push payments from your eFiling profile; rather let clients pay from their bank profile. SARS is an approved beneficiary.
Happy New Tax Season!