By Geo Kilian
With tax season in full swing, taxpayers are once again at the mercy of the SA Revenue Service (Sars) to process their tax returns. Sars has proved to be a world-class organisation that delivers services that can be compared to the best revenue services globally.
In 2023, it was reported that Sars processes approximately 5.4 million tax returns annually, including returns from both individual and corporate taxpayers. The auto-assessment system introduced by Sars in 2020 has helped streamline the process, although a substantial volume of returns is still handled manually through eFiling and the Sars MobiApp.
Individuals with more complex tax structures may find they do not fall in the auto-assessed bracket and must submit their tax returns before the prescribed deadline. Most delays and problematic cases between Sars and taxpayers stem from a communication gap or miscommunication. The daily misunderstandings are “staggering”.
Sars acts as a neutral and professional entity that meticulously adheres to protocol when handling cases. Requests for additional information or raised assessments from Sars can often be perplexing. Understanding Sars’ perspective is crucial, as they must be thorough in their review. While accountants may view numbers as clear evidence of the financial state, the process is more complex upon closer scrutiny.
Many exasperated clients often seek help and ask for assistance due to miscommunication issues. A clear example of this communication gap is evident in the application of section 12B/12BA of solar tax deductions. Many tax practitioners in the private sector misunderstand the requirements and documentation needed to substantiate these deductions, leading to a long road of confusion. Sars often requests further clarification or additional evidence, causing frustration on both sides.
Complex tax matters warrant a tax team that understands the various Tax Acts from both an accounting perspective and a legal standpoint. This understanding improves communication with Sars, as Sars’ officials will assist taxpayers with compliance. A tax team can provide the necessary expertise to navigate the complexities of tax laws and regulations, ensuring the taxpayer is well-prepared to meet Sars’ requirements. It is crucial to comprehend what Sars is seeking, and confusion often occurs when supporting evidence or documentation is necessary for the taxpayer to discharge the onus of proof under section 102 of the Tax Administration Act (TAA).
Section 95 of the TAA stipulates that Sars may make an original, additional, reduced, or jeopardy assessment based in whole or in part on an estimate if the taxpayer submits incorrect or inadequate material. Sars can make an estimation based on information readily available, which could severely impact the taxpayer.
A high-net-worth individual might struggle for months to obtain a tax benefit for claiming a section 12B/12BA tax allowance or a large corporation might face issues if Sars wants to include millions of additional trades as taxable income. This has significant implications for the company’s financial affairs.
The key to successful outcomes with Sars, particularly when representing high-net-worth individuals and corporations, is understanding the language Sars uses. It involves identifying the correct evidentiary materials Sars will accept to substantiate your claims beyond ensuring the numbers add up. Submitting well-documented evidence to support those numbers is paramount.
* Kilian is a tax attorney at Hobbs Sinclair Advisory.
PERSONAL FINANCE