By Lesedi Seforo

You bump into a friend you haven’t seen in a very long time – one of those friends you have on Facebook.

“How was your holiday in Mozambique?” she asks, smiling.

You know for a fact that you never told her about Mozambique. “How does she know?” You wonder.

Then you remember you posted the pictures on social media.

The South African Revenue Service (SARS) is a bit like that friend.

A certain taxpayer once received a SARS letter which began thus:

“According to information at SARS’ disposal, the taxpayer sold the following properties…”

The letter then went on to provide details of the properties – the purchase and selling prices, as well as ERF numbers, the area and, in some cases, the apartment complex where the properties are located. This was all contained in a section of the letter titled “Capital Gains Tax not declared.”

SARS then demanded payment of the Capital Gains Tax, which should have been paid from the sale of those properties. As if that was not enough, they also slapped the taxpayer with a hefty penalty.

 

SARS Is Not Limited To SA Borders

In case you are under the impression that a tax authority like SARS is limited to the local South African environment, consider the following excerpt from a SARS letter which was received by a taxpayer:

“SARS received a request for assistance for the collection of outstanding taxes from HM Revenue & Customs…”

The taxpayer in this particular instance had earned income in the United Kingdom and returned to South Africa without paying the tax in the foreign country. Unfortunately for him, tax collection agencies have recently realised that they are way better off collaborating with one another, given the ease with which people can move around the globe and earn undeclared income. The UK version of SARS (HM Revenue & Customs) in this case made use of a clause in the tax treaty between South Africa and the UK which allows the one country to request the tax authority in the other country to assist it with the collection of taxes owed to it by a resident of either country.

A British citizen who returns home after not declaring his income to SARS, while on a temporary work assignment in South Africa, may receive a letter from HM Revenue & Customs stating that SARS has noted that they are owed South African taxes. The British tax authorities will then be obliged to assist SARS with collecting that tax.

The point is clear: it is very risky business to attempt to hide certain income or assets from SARS. The main problem with owing SARS is not so much the tax amount you originally owed, but rather the large penalties and interest charges. Often, the interest and penalties can exceed your original tax debt to SARS.

 

So, what type of information does SARS have on you?

The Tax Administration Act lets us know. Section 26(1) specifically states that the SARS Commissioner may require certain persons to submit a return to SARS.

Persons who

  • employ others;
  • pay amounts to other people;
  • receive amounts on behalf of other people; or
  • have control over the assets of another person

must submit a specific kind of tax return to SARS.

The most well-known return submitted to SARS per the above requirement is an IRP5 tax certificate. The IRP5 is a document which contains the amount of your salary, bonus and other remuneration you earned during that tax year.

Just before the tax season for individuals begins in July of each year, most of us receive this tax certificate from our employers. What you may or may not know is that your employer is also required to send the same tax certificate to SARS. That is why your tax return on e-filing is already pre-populated with information from your IRP5.

The same principle applies to a lot of other information.

If you belong to a medical aid scheme, for instance, and submitted your 2017 tax return last year, you will have noticed that, for the first time, your tax return was prepopulated with information from your medical aid scheme.

This is because medical aid schemes are also required to submit returns to SARS. Such returns must include details of your total contributions for the year, the number of beneficiaries under your medical aid package and your medical aid number.

Do you have shares listed on the stock exchange, unit trusts, or properties from which you earn rental income? There’s a good chance SARS already knows about these assets.

Every year, the SARS Commissioner publishes a public notice listing specific persons who must submit the above-mentioned returns to SARS. These persons or organisations include:

  1. Banks
  2. Companies listed on stock exchanges
  3. Estate agents who receive property rentals from tenants, on behalf of property owners who are renting out such properties.
  4. Financial institutions regulated by the Financial Services Board Act, 1990

So, like your friend on Facebook, SARS can come up to you and say, “So, Mr. Mazibuko, you must be excited about that half a million rand you earned last year from your Allan Gray unit trust investment?”

Unlike your friend on Facebook, they won’t be happy for you.

Instead, a hand will be stretched out and they’ll be asking “where’s my cut?”

Lesedi Seforo is a tax director at JDK & Partners Tax Practice. He is passionate about educating taxpayers about their rights and assisting clients with minimising their tax burden. He provided guidance to tax professionals on a wide variety of technical tax matters.

Lesedi is a registered tax practitioner with SAIT.

email him at lesedi@jdk.tax

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