My parents always told me that you’re never too old to learn, and also to learn from other’s mistakes.
In this case it’s not a mistake, but we can learn from questions SARS asks other taxpayers. This way you can make sure that you have the right evidence to provide to SARS if and when they require it. Remember, the onus rests on the taxpayer to provide the necessary evidence to SARS to substantiate the deduction of expenses incurred in the production of income.
I want to share some new / updated questions we have received from SARS, mostly for the 2017 tax year, so that you can ensure you have the correct and proper evidence and supporting documents for the 2018 tax year.
- We all know that to claim travelling expenses, you need a detailed logbook. Lately SARS has been asking for proof of purchase of the vehicle. So, make sure that the date and purchase price of the vehicle provided on the IT12 Income Tax Return corresponds with you supporting documentation.
- A detailed logbook with a breakdown of actual expenses in respect of each motor vehicle must be provided. The fixed cost method cannot be used if no allowance was received. In the past, we used to compare the deduction using actual expenses with the fixed cost method. Many taxpayers chose to go with the fixed cost method as it usually gave a more favourable result. I think SARS noticed this, and as the saying goes: All good thing must come to an end.
SARS issued the following query to an individual trading in his own name, but the same information can be required from any taxpayer, whether a company, trust or close corporation.
- Provide a detailed description of the business with a detailed explanation how each and every expense was incurred in the production of the income. The taxpayer was required to provide a motivation for the following list of expenses:
- Accountancy Fees
- Bank Charges
- Computer Expenses
- Commission Paid
- Consultation Fee
- Electricity and Water
- General Expenses
- Maintenance – Buildings
- Printing, Stationery, Postage and Courier
- Rates and Taxes
- Salaries and Wages
- Small Tools
You need to rethink your expenses claimed; why or how is this expense incurred in the production of income, and should there perhaps be an apportionment for private use?
- What possibility exists to increase gross business income?
- Furnish the business plans and any changes thereto to ensure that the business will in future derive taxable income.
- With regard to entertainment expenses, the taxpayer was required to provide a detailed list of the person/s entertained, the venue, date and cost of every event. I don’t think many taxpayers keep a list of the clients they entertain. Also, remember that till slips tend to fade over time – so please make a copy of the slip to make sure the information is still legible after a couple of years. If I were a SARS employee and presented with a slip that is so faded that I can’t read it, I would disallow the expense. It’s a good thing I’m not working for SARS!
- Please provide the name and identity number to whom the salary income was paid. If you are an employer you need to deduct PAYE (Pay as You Earn) from the salary/wages paid to employees, as well as UIF contributions, if applicable. SARS could ask a taxpayer to provide the PAYE reference number to them and this could lead to a whole new set of problems if everything is not in place.
Remember that the taxpayer bears the onus of proving that an expense was incurred in the production of income. The golden rule is: If you want to claim it, you need to prove it. So make sure that your supporting documents are complete and correct.
Petro van Deventer