November 2018

UKnow Editorial – Nov 2018

The countdown to the end of the year has begun, with around 6 weeks to go until a well-deserved summer break for most. Many of us are feeling the pressure to get everything done before the holidays!

International transactions are becoming a common occurrence for businesses and individuals. However, with these transactions people often forget the related international tax and exchange control implications. As our world becomes a global village, especially with e-commerce being so accessible nowadays, this is something that needs to be taken into account and planned for. Failure to do so can result in dire consequences. Be mindful of this when dealing with any transaction outside the borders of South Africa.

The SARS filing season for non-provisional taxpayers ended on 31 October and the preliminary results have been published by SARS. The filing season was shorter than in previous years, but it seems that the results improved from last year. The next filing deadline is 31 January 2019 for the 2018 income tax returns for provisional taxpayers.

If you want to respond to or comment on any of our news items or other relevant information, please contact us at news@unikone.co.za or 022 – 482 1169, or join the conversation on our social media platforms on Linkedin, Instagram and Facebook.

Warm regards until next month.

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Penalties for Non-submission of Corporate Income Tax Returns

This penalty is not a new thing for individual taxpayers, as SARS had been imposing penalties for non-submission of their income tax returns since 1 January 2009.  Companies with outstanding income tax returns have recently received notifications from SARS that this penalty will now be imposed on companies as well.

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It is not surprising that SARS decided to also impose the penalty on companies who fail to submit their income tax returns.  What is surprising is that SARS issued this notice in September, while the public notice referred to in section 210(2) was still only in draft form and open for public comment until the 31st of October 2018.

The “failure to comply with an obligation that is imposed by or under a tax Act” is defined in the draft public notice as follows:

Failure by a company to submit an income tax return as and when required under the Income Tax Act for years of assessment ending during the 2009 and subsequent calendar years, where SARS has issued that company with a final demand, referring to this notice and requiring the submission of the outstanding income tax return, and the company failed to submit the return within 21 business days of the date of issue of the final demand.

Compare this to the public notice issued in respect of natural persons:

Failure by a natural person to submit an income tax return as and when required under the Income Tax Act for years of assessment commencing on or after 1 March 2006 where that person has two or more outstanding income tax returns for such years of assessment.

Companies have not been afforded the “one return grace” enjoyed by natural persons.  Once the draft notice has been accepted and SARS issues the public notice, a company that is not up to date with its returns will be liable for the administrative penalty.

The penalties range from R250 to R16 000 per month that non-compliance continues, depending on a company’s assessed loss or taxable income.  It is compulsory for registered companies to submit their income tax returns. If a company is dormant, it is still required to submit any outstanding returns prior to 2018.

A company must submit its income tax return within 12 months from the date on which its financial year ends.  A “year of assessment” is defined as the financial year ending in any particular calendar year.  So, while natural persons have to submit their 2018 income tax returns by 31 October 2018 and provisional taxpayers by 31 January 2019, a company with a financial year ending on 28 February 2018, will have a full year to submit its income tax return.

It will be interesting to see if SARS treats the notices issued in September as “final demands” for purposes of the imposition of the penalty.  In the interest of fairness and reasonableness, the demands should only be issued after the public notice has been published in the Government Gazette.

Annalize Duvenage – Specialist Tax Consultant

Petro van Deventer – Senior Manager

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Selected for verification? What to expect

Every professional accountant needs to do continuous professional development (CPD) to meet the requirements of his or her professional body. While getting my CPD hours up to date, I stumbled across this article from SARS.

I immediately knew that I would love to share the article, as it deals with something that I encounter on a daily basis.

It often happens that after an income tax return is submitted, SARS informs you that your return has been selected for verification. The letter they issue is a standard e-Filing letter asking for supporting documents.

Being selected for an audit and being selected for verification are two different processes. I will publish a separate article about being selected for audit in a next edition of UKnow.

The information below is taken from a publication of SARS and therefore with credit to them.

Who can be selected for verification?

Any taxpayer can be selected by SARS for verification for the purpose of proper administration of tax, including selection on a risk basis.

(We can only assume that the risk assessment is done by a computer, but we have no information as to what the risk parameters are.)

What is verification?

Verification is a face-value verification of the information declared by the taxpayer on the declaration or in a return. This involves a comparison of this information against the financial and accounting records and/or other supporting documents to ensure that the declaration/return is a fair and accurate representation of the taxpayer’s tax position.

Once you have submitted your declaration/return, your declaration/return could be selected for verification.

(What SARS doesn’t say here is that you could also be selected for audit, either after a verification or instead of a verification.)

What steps should I take if I am selected for verification?

If you are selected for verification, you will be notified by SARS through an official letter. This letter will indicate that you must either submit the requested relevant material (supporting documents) within 21 business days from the date on the letter or alternatively submit a Request For Correction (RFC).

The required relevant material will differ depending on the tax type.

SARS Top Tip: The relevant material needed will be listed in the verification letter sent by SARS.

(Just a note to mention:  Firstly, the letters that we receive on eFiling in fact require us to submit the relevant information within 21 days.  This means calendar days, not business days.  And SARS treats this deadline very seriously.  Secondly, the standard letters issued on eFiling are issued with a standard list.  However, it often happens that SARS is actually looking for something very specific that is not on the list.  But more about this later.)

 “What can I expect during the verification?

A letter requesting further relevant material could be issued if the relevant material initially supplied was not sufficient to finalise the verification.”

This second letter issued on eFiling is identical to the first.  Sometimes SARS sends an email to specify the material that they require.  Sometimes we receive a telephone call from SARS to request the information or material.  In other cases, we need to phone SARS to try and find out what it is they are looking for.  Very often we have no idea what they require, as we are in only possession of two identical, system-generated letters.  Without further notice we are often then notified that an additional income tax assessment has been issued with the reason “ASSESSMENT BASED ON INFORMATION AVAILABLE TO SARS”.

What if I don’t respond to the request for verification?

If you do not provide the relevant material, a second letter will be sent to you. If you still do not respond, a SARS official will contact you telephonically and request that you submit the necessary relevant material within 5 business days.

Should you not respond to this telephonic request, SARS may raise an assessment based on information readily available or obtained from a third party.

Top Tip: It is better to respond to all queries straight away. Higher penalties can apply if it is found that an understatement occurred.

What can I expect when the verification is finalised?

If you are subject to an inspection, verification or audit, we will endeavour to:

  • Notify you that the return or declaration is subject to verification within 15 business days of submission, if your return is for the current filing period.
  • Conclude verification within 21 business days from the date all required supporting documents are received, if your return is for the current filing period.
  • Conclude an audit within 90 business days from the date all required supporting documents are received.

SARS must ensure that the tax position declared is in line with the relevant tax legislation.  If it is found to be incorrect, an assessment will be raised.

The levying of understatement penalties must be considered by SARS where an understatement occurred. The percentage of a penalty varies from 0% to 200%. Harsher penalties are reserved for culpable repeat offenders or obstructive taxpayers.

Once the verification is finalised, you can expect one of the following:

  • Where no further risk(s) were identified and no finding was made, a Notification of the finalisation of the verification via eFiling, e-mail or post;
  • Where no further risk(s) were identified and a finding was made, a Notice of Assessment of the revised assessment via eFiling, e-mail or post;
  • Where further risk(s) were identified, a Referral for Audit Letter via eFiling, e-mail or post.  If you have a refund due, the refund will only be paid once the audit is complete and the specific refund validations were passed.

If you are aggrieved by the assessment, you can dispute it.

If SARS revised the assessment, you need to ask them the reasons for doing so as they don’t usually send you a letter providing the reasons.  Except in the case of a trust, the request for reasons must be submitted on eFiling.  SARS must provide the taxpayer with the reasons within 45 business days.

Petro van Deventer

Senior Manager

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