Importance of accurate income tax returns
Not everyone is aware that the South African Revenue Services (SARS) is focusing on seven specific areas until the 2016/2017 financial year when the SARS five year compliance programme ends.
These seven areas are:
- Wealthy South Africans and their associated Trusts;
- large businesses and transfer pricing;
- the construction industry;
- illicit cigarettes;
- tax practitioners and trade intermediaries;
- undervaluation of imports in the clothing and textile industry; and
- small businesses.
SARS has made it very clear that, although their focus will be on the seven areas mentioned, taxpayers who don't fall within these categories won't escape their notice. SARS will continue with its regular risk-based compliance work using a verification system - which includes audits and investigations - allowing them to detect non-compliance in all areas.
If we look at its first focus-area, 'Wealthy South Africans and their associated Trusts', we know that SARS will be investigating particular areas of concern. These areas include:
- fringe benefits not being declared;
- input VAT claimed without declaring VAT on trade income;
- artificial losses and deductions;
- salary restructuring;
- assets and income derived through associated entities; and
- incorrect declaration of revenue profits as capital in nature.
High net worth individuals - those with an average income of R1.7m per year - would do well to ensure they are 100% SARS compliant as closer scrutiny can be expected. High net worth individuals are often linked to associated trusts and companies, some of which might be used as vehicles to channel and hide income and assets. You can be sure SARS will be taking a closer look at these individuals.
Some initiatives, which SARS has implemented to achieve the compliance programme goals, include:
- Increasing the use of data flows from other jurisdictions through the international exchange of information programme.
- Improving collaboration with the Master's office by obtaining information on trusts, trustees and beneficiaries.
- Improving the ability to trace the flow of funds around the world.
- Moving towards a more pre-emptive engagement with taxpayers by meeting with taxpayers prior to the submission of personal income tax returns.
- Encouraging taxpayers to make use of the advance-ruling regime at SARS.
- Including additional third-party information such as lifestyle questionnaires.
- Ensuring registration of income tax of all wealthy individuals.
- Focusing on wealthy individuals where SARS has already identified discrepancies between the individual's asset base and declared income.
- Reviewing the Structure Tax Returns for both individuals and trusts.
- Encouraging all taxpayers to make voluntary disclosure of any default with regards to direct or indirect taxes to SARS.
I encourage all individual taxpayers to take extra care during the upcoming filing season to ensure the completion and submissions of all personal income tax returns are done accurately and timeously.
Signing your income tax return is a declaration that all the information you have submitted is true and correct. Taxpayers are advised to consult with a tax practitioner to ensure full compliance with SARS this filing season, which starts on 1 July 2015.