Tax assessment errors: What do I do now?

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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)

Tax disputes: suspension of payment

Tax , ,

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

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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)

The taxing of capital gain

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Section 9HA of the Income Tax Act deals with deemed disposals by a deceased person. This section of the Act often causes some confusion, especially where there are heirs or legatees other than the surviving spouse. In terms of the provision, a deceased person is treated as having disposed of his or her assets at the date of death, for an amount received or accrued equal to the market value of those assets as at the date of death.This deeming provision does not apply to the following circumstances:

  • Assets of, or for the benefit of the deceased’s surviving spouse.
  • An interest in a resident pension, pension preservation, provident, provident preservation or retirement annuity fund; or a fund, arrangement or instrument outside of South Africa, which provides similar benefits to that in South Africa.
  • In respect of some long-term insurance policies of the deceased.

The position is, however, different if the surviving spouse of the deceased acquires the assets. In this instance, the deceased is deemed to have disposed of the assets at base cost on the date of the deceased’s death. The surviving spouse essentially steps into the deceased’s position.

In the situation where assets are acquired by heirs or legatee’s, assets acquired are treated as though they were disposed of on the day immediately before the deceased’s death, at the market value of those assets. In this instance, any capital gains are to be included in the deceased’s final tax return covering taxes up to date of death.

The consequence is that, if an heir or legatee acquires assets in this manner, the base cost for them is the market value of the assets on the date of death of the deceased.

The practicalities of death are that there are essentially three different taxpayers involved:

  • The deceased person is to file a return covering taxes up until the date of death.
  • Thereafter, the deceased estate is regarded as a “person” for purposes of tax and is required to file a tax return for income earned after death, for each year that the estate is active.
  • Then finally, any heir or legatee is the ultimate beneficial owner of the assets and acquires the assets, and these then form part of such heir or legatee’s estate from the date of distribution to said person.

Executors of estates should, therefore, exercise caution when dealing with the capital gains tax consequences of a person’s death, as the type of heir or legatee could determine the treatment.

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)

Are my donations being taxed?

Tax , ,

BPR 338 deals with the tax treatment of payments made to a Public Benefit Organisation (PBO) at a fundraising event, under section 30 of the Income Tax Act. The ruling is essentially an interpretation of section 18A of the Act and seeks to clarify the situation for PBOs and funders.

In terms of the transaction, the Applicant (a resident company registered as a PBO) will host an event for the explicit purpose of fundraising, but this event will be managed by a third-party events management company.

As is commonplace, persons attending the events will make payments to participate in activities taking place at the event, as well as make donations. The events management company manages an electronic system that will enable funders and donors to make payments at the event. This system is accessible through various roaming electronic touchscreen devices, developed for the distinct purpose of distinguishing between donations and payments for activities.

By the end of the evening, each attendee is required to settle their required payments in respect of the relevant transactions they entered into, with one single card payment. The system then determines which attendee is entitled to a section 18A certificate, as well as the amount to be reflected on the receipt. Only donations made by attendees are reflected on the section 18A receipt.

One condition and assumption of this ruling is that the payment tracking system must, as closely as practicable, conform to the one proposed and its intended function, accounting for the donations of money separately from payments, must be easily verifiable.

The ruling made by SARS is that donations made and identified as such by the applicant’s payment tracking system at the fundraising event will constitute bona fide donations made to a PBO under section 18A of the Act, and as such, the applicant may issue the donors with section 18A receipts in respect thereof.

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)

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