Tax assessment errors: What do I do now?

With the 2020 tax filing season in full swing, many taxpayers will likely engage in dispute proceedings as SARS issues their income tax assessments. This will particularly be the case where errors are contained on the so-called “auto-assessments” (which in itself is a misnomer). But how should the dispute process begin?

When an assessment is issued by SARS, they (usually) provide a short description of the reason for the assessment. Importantly, the SARS official is often restricted in what he/she can include on such an assessment as a reason (such as a selection from a “drop-down” list). For example, for additional VAT assessments (VAT217), taxpayers often find the following:

  • “Burden of proof not discharged”;
  • “Invalid tax invoice”; or
  • “Not a valid input claim”.

Such descriptions are not a clear indication of the relevant matter, particularly if it is evident that the alleged transgression is not present. The risk of such an unclear description is that a taxpayer essentially only has one opportunity to state its grounds of objection. This could seriously jeopardise a taxpayer’s case, since taxpayers may not appeal on a ground that constitutes a new objection against a disputed assessment. If a valid ground of objection is therefore not addressed in the objection itself, taxpayers may lose the opportunity to object to a specific ground.

In the example above – the assessment may indicate that the reason for the assessment is that there is not a valid tax invoice, but in fact, the issue relates to the time of supply, or the value of supply for VAT purposes – clearly not remotely related to the reason provided for on the assessment.

In terms of Rule 6 of the dispute resolution rules, a taxpayer who is aggrieved by an assessment may request SARS to provide reasons for an assessment. The reasons provided by SARS must enable the taxpayer to formulate its grounds of objection. The reasons for any administrative action must include the reasons for the conclusion reached, and it is not enough to merely state the statutory grounds on which the decision is based or repeat the wording of the legislation. The decision-maker should furthermore set out his understanding of the relevant law.

Requests for reasons for an assessment can be made on the eFiling system under the dispute section, as part of a taxpayer’s profile. When there is even the slightest uncertainty as to the reasons for an assessment, taxpayers are strongly advised to request reasons to ensure that they provide themselves with the best possible chance of success in a dispute.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Investment with a solid foundation

Buying real estate is more than finding the right home or location for your business – owning property is an investment that holds more benefits than you might know.

Income Predictability

While interest rates may alter mortgage repayments at first, real estate offers a somewhat constant financial investment. Once home loans are repaid in full, real estate offers the owner a constant income that does not fluctuate with the market, an income that can increase with inflation. Of all the investment types, real estate is the safest from external influence.

Increasing Value

Property appreciates in value over time. Thanks to South Africa’s reliable climate, real estate investments rarely depreciate due to natural causes, so long as the property is well looked after by its tenants and owner. Appreciation levels have increased at 6% per year, on average, since 1968, meaning your investment will grow no matter what.

Improve Your Investment

Where other investments rely on the financial market, the greater economy and an organisation’s performance to increase their value, property value can be greatly improved by improving the actual property. With a little elbow grease and dedicated planning, you can increase the value of your investment yourself.

Retirement Ready

A great benefit of owning property is that it is there when you need it the most. While the initial burden of home loan down-payments on cashflow can be rather strenuous, the weight lessens considerably over the years as the principal reduction increases. This means that your cashflow will increase as you near retirement, allowing you to invest your money more appropriately.

Up Your Equity

While you pay off your home loan, you are also increasing your equity as your property counts as an asset in your net worth. Through increased equity you will be able to gain more leverage in financial situations, when obtaining a loan, for example, and you will be able to grow your wealth more steadily as well.

Portfolio Diversification

Real estate investment holds less risk than other major class investments, allowing you to create a diversified and safer investment portfolio. Through a diversified investment portfolio, you ensure that your investments are not all influenced by the same external factors, such as a fall in share value (as has been seen during the COVID-19 pandemic).

When you start looking at investment options, it may be a wise decision to consider including real estate in your portfolio early on. Remember to reign in the assistance of the experts to help you find the perfect property to invest in.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Tax disputes: suspension of payment

With the 2020 tax filing season in full swing, many taxpayers are likely to engage in dispute proceedings as their income tax assessments are issued by SARS. This will particularly be the case where errors are contained on the so-called “auto-assessments” (which in itself is a misnomer). But what happens to the disputed tax amount until the process is finalised?

Pay now, argue later

The basic premise is that even though you disagree with an amount of tax, once you have been assessed by SARS, the amount becomes due. Neither your obligation to pay the tax, nor SARS’s right to recover the tax, is suspended by any objections or appeals against the assessment or pending court proceedings (i.e. you have to pay the tax, and then dispute it).

Taxpayers do however have some remedy, in that they may request a senior SARS official to suspend the payment of the tax (or a portion thereof), pending the outcome of a dispute against an assessment. It is necessary for a taxpayer to dispute (or at least communicate their intent to dispute) the amount of tax allegedly due before a request to suspend the payment can be made.

When?

Recently, there has been an increasing trend for SARS to issue letters of “final demand” shortly after assessments have been issued. In these cases, SARS has, for all practical purposes, commence with collection proceedings. Taxpayers should, therefore, apply for the suspension of payment as soon as they know that they will object to the amount.

How does it work?

Requests for suspension of payment is done on the eFiling system as part of the dispute section of a taxpayer’s profile. When the system prompts taxpayers for the required information required, it is important to provide as much relevant information as possible for the SARS official to consider the request. Irrelevant information (or a lack of information) merely prolongs the dispute process.

Who is responsible?

SARS will not automatically suspend the payment of a tax amount once the dispute process has commenced. Taxpayers will need to actively take steps to initiate the suspension. A request for suspension of payment is a vital part of the dispute resolution process and should be submitted as soon as possible for an assessment that a taxpayer intends to dispute.

Possible abuse?

Taxpayers should not look to abuse the suspension system as a means to buy time. Not only are SARS officials well within their rights to revoke a decision to suspend payment with immediate effect it is not in the good administration of the tax system to allow such abuses.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Beware of scams during filing season

In late August 2020, a large credit bureau in South Africa was the target of a data breach where millions of private individual and company data records were compromised. This data leakage, coupled with the tax filing season, makes for the perfect opportunity for taxpayers’ information to be abused, subjecting taxpayers to potential financial loss.

Scammers thrive on the inherent vulnerability of taxpayers during the tax season and know how to capitalise on the taxpayers’ struggles in dealing with SARS and their fear of the tax process. In Augusts 2020 alone, many correspondence scams that contain links to phishing websites have already been identified:

Fraudsters are also capitalising on the filing season by posing as tax practitioners to obtain sensitive information, including banking details. Remember that any tax practitioner who charges you for their services, must by be registered with a regulated controlling body. (You can easily verify your practitioner’s details here: https://secure.sarsefiling.co.za/TaxPractitionerQuery.aspx).

SARS provides the following guidelines when dealing with correspondence that purports to be from them:

  • Do not open or respond to emails from unknown sources;
  • Beware of emails that ask for personal, tax, banking, and eFiling details (login credentials, passwords, pins, credit/debit card information, etc.);
  • SARS will never request your banking details in any communication that you receive via post, email, or SMS. However, for telephonic engagement and authentication purposes, SARS will verify your information. Importantly, SARS will not send you any hyperlinks to other websites – even those of banks;
  • Beware of false SMSes;
  • SARS does not send *.htm or *.html attachments;
  • SARS will never ask for your credit card details.

SARS has also made a facility available where scams or phishing can be reported. Taxpayers can either email phishing@sars.gov.za or call the Fraud and Anti-Corruption Hotline on 0800 00 2870.

All taxpayers are urged to remain vigilant this filing season and ensure that their data is protected.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Setting your business up for expansion

When businesses expand, they often look beyond national borders. With such an expansion, there are several added advantages for establishing a holding company, which then owns the various group operating companies in different jurisdictions. Various aspects contribute to considering an ideal holding company location, and a brief discussion is outlined below.

Political stability
Political instability and constant political upheavals cause uncertainty within the jurisdiction and foreign countries that do business with that jurisdiction.

Ease of doing business
This does not specifically refer to actual business done by the company but relates to the associated (support) industries that one may encounter within the jurisdiction. Reputable banking institutions are required for transferring funds and investing capital; and competent service providers who know the industries, laws and practices.

Robust legislative framework
Laws and legal frameworks that allow the broader business plan and its associated structures to function are non-negotiables and the protection of property rights is essential. Beyond this, it is commonplace for many countries to implement (especially tax) laws to the detriment of citizens and resident retroactively. These jurisdictions could be harmful to an estate planning structure.

Ease of doing business with other jurisdictions
Considerations relating to tax- and trade treaty networks, business councils/chambers and foreign-owned company presence is important to ensure that a jurisdiction does not become isolated, and ceases to serve its intended purpose.

Structures and mechanisms to remove risk from the client
Some jurisdictions cater for structures such as trusts or foundations that may remove the inheritance- or capital gains tax burden or forced heirship rules from the business owner’s estate. This minimises tax liability on death, allows for the smooth succession of high-value assets, and ensures that management and control of assets remain central with professionals. Essential estate planning goes hand-in-hand with global expansion.

Substance requirements (laws)
As a requirement of meeting the “compliant” status that is issued by the OECD, jurisdictions have been required to reform and implement “substance laws”. To lay these out shortly, they are essentially a set of laws that ensure that no fraudulent money laundering activities take place through fictitious entities with fictitious members. In terms hereof, any structures that are established are required to meet the substance requirements as follows:

Carry out core income-generating activities in the jurisdiction (depending on which jurisdiction is chosen);
Ensuring that a ‘warm body’ is available to manage structures and that the “post box” effect is eliminated; and
At least a level of expenditure that is proportionate with the investing and management activities of the entity.

Advantageous tax and exchange control laws
A consideration in global expansion is choosing a tax-efficient jurisdiction that has easy-to-comply-with or no exchange control restrictions. These allow for ease in capital deployment, and benefits the owners when profits are derived. Taking advantage of tax-friendly countries to serve global expansion should, however, not be the only consideration.

The above provides only some of the primary considerations for a choice of headquarter location when expanding. It may also be that as part of an expansion, one jurisdiction is more suitable from an estate planning perspective, and another for business purposes, which tends to complicate matters. What is important, though, is a robust framework for the choice of jurisdiction, to ensure that ease of business and expansion efficiency may be possible.

1 2 3 6