Application for reduced assessments

Business , ,
Where taxpayers are aggrieved by assessments issued by the South African Revenue Service (SARS), the Tax Administration Act[1] makes provision for a dispute resolution process, whereby a taxpayer can request reasons for an assessment, object to an assessment, and if necessary, further appeal procedures are available. Dispute resolution is process-orientated, and strict rules prescribe the form, dates and general procedures applicable to both taxpayers and SARS. Given the involved process, dispute resolution is often costly, with professional assistance being required to ensure compliance with the system. When there are obvious mistakes in an assessment (as opposed to matters of substance or interpretation), going through a dispute resolution process can be a frustrating process for taxpayers, since amounts assessed should never have arisen in the first place. 

Fortunately, the Act makes provision (in section 93), for SARS to make reduced assessments if SARS is satisfied that “there is a readily apparent undisputed error in the assessment” by SARS or the taxpayer in a return. SARS may make such reduced assessments even though no objection has been lodged, or no appeal has been noted. There are however some difficulties in applying section 93, both practically and in substance.

 

On a practical level, neither the Act nor any dispute resolution rules make provision for the process to be followed in terms of section 93. In a recent tax court decision,[2] the judge concluded the following regarding the process:

 

However, the basis on which a taxpayer can have a matter considered under s 93(1)(d) is clearly not by way of objection to, or appeal against, an assessment. A separate procedure is available for these. Neither does it envisage a formal application. It seems to me that it is simply by way of a request.

 

The request procedure, unfortunately, leaves the taxpayer out in the cold, since it is doubtful that an outcome to the request would have been obtained within 30 business days after an assessment was issued – the period within which an objection was required to be lodged. An application in terms of section 93 will not suspend the period during which an objection is required to be lodged – should the request ultimately be denied; the taxpayer has severely damaged his chances on success if objection is the next recourse, since the objection may potentially be submitted late.

 

Equally challenging, is that there is no clear indication or definition for what would amount to a “readily apparent undisputed error”. What may be very apparent to the taxpayer, may not be interpreted as such by SARS. Arguably, a “readily apparent undisputed error” would be something along the lines of incorrect tax rates applied, or incorrect penalty percentages applied – requiring minimal (if any) interpretation of tax provisions.

 

Although providing an avenue for the reduced assessments for taxpayers, a request in terms of section 93 should be managed very cautiously, as it may be necessary to run a parallel objection process to ensure that taxpayers are not jeopardised in the other remedies available to them, in the event of an unsuccessful request.

 

[1] No 28 of 2011 (“the Act”).

[2] Rampersadh and Another v Commissioner for the South African Revenue Service and Others (5493/2017) [2018] ZAKZPHC 36 (27 August 2018).

 

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)

Value-added Remarks on Value-added Tax (VAT)

Tax , ,

VAT is an integral part of our economic society and is something that influences everyone, especially businesses in South Africa. In this article, we will discuss a few do’s and don’ts regarding VAT.

 

  1. Valid tax invoices

 

In South Africa’s current tax system, vendors that are registered for VAT are allowed a deduction for the tax they pay on eligible goods or services (input tax) from the tax you collect on the sales made (output tax). Tax invoices are therefore very important to vendors as failure to provide valid documentation during VAT audits will cause the vendor to lose all the input tax being claimed on the invoice. The following requirements will overcome the challenges that may be encountered because of SARS scrutinising the validity of VAT invoices.

 

When the tax invoices exceed R5 000, a full tax invoice needs to be provided. For invoices of  R5 000 or below they may issue an abridged tax invoice. There will be no tax invoice needed if the consideration is R50 or less. However, documents such as a sales docket or till slip will be necessary to verify the input tax deducted.

 

As from 8 January 2016, the following information must be reflected on a tax invoice for it to be considered valid:

 

  1. Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”
  2. Name, address and VAT registration number of the supplier
  3. Serial number and date of issue of invoice
  4. Accurate description of goods and/or services (indicating where applicable that the goods are second-hand goods)
  5. Value of the supply, the amount of tax charged and the consideration of the supply
  6. Name, address and where the recipient is a vendor, the recipient’s VAT registration number
  7. Quantity or volume of goods or services supplied

 

Note that an abridged tax invoice will only need to meet criteria 1 to 5, whereas the full tax invoice (tax invoices exceeding R5 000) must meet all criteria.

 

  1. When to declare output VAT/claim input VAT

 

The date on which VAT becomes due on a transaction is the earliest of either the payment date or the invoice date. For example, if a payment is received in advance of the invoice issued for the supply, the VAT will be due on the date of receipt of payment. It is important to note that output VAT should be declared in the period in which the invoice has been issued or the payment has been received. With regards to input VAT, here the 5-year rule applies.

 

This rule provides that any amount of input tax which was deductible and has not yet been deducted can be claimed in a following period but is limited to a tax period 5 years after which the tax invoice should have been issued.

 

  1. Overpayments by the customer

 

When a vendor receives an overpayment from a customer, that vendor will not declare VAT on the overpayment. If a vendor fails to refund the overpayment within 4 months of the date of the invoice, the excess amount is deemed to be a consideration and therefore output VAT should be declared on the last day of the VAT period during which the 4-month period ends at a tax fraction of 15/115.

 

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)

Admin penalties for outstanding corporate income tax returns

Tax , ,

In general, all registered companies must submit corporate income tax (“CIT”) returns within 12 months of the end of the company’s financial year-end. This is applicable to all companies that are resident in South Africa, that receive source income in South Africa, or that maintain a permanent establishment or a branch in South Africa.

 

On 29 November 2018, the South African Revenue Service (“SARS”) issued a media release confirming that SARS will soon start imposing administrative non-compliance penalties as provided for in Chapter 15 of the Tax Administration Act[1] for outstanding CIT returns. To date, these penalties were only imposed on individuals with outstanding income tax returns.

 

This announcement follows a media release earlier in November 2018 which stated that SARS is once again embarking on a nationwide awareness campaign to reinforce taxpayers’ obligations to submit outstanding tax returns, specifically targeting companies.

 

In this regard, the fixed amount penalties in terms of section 211 of the Tax Administration Act range from R250 (where the company is in an assessed loss position) to R16,000 (in instances where the company’s taxable income exceeds R50 million) for each outstanding return. Once the penalty has been imposed, the penalty will increase by the same amount for every month that the non-compliance continues.

 

In order to determine the amount of the penalty to be imposed, SARS will consider the year of assessment immediately prior to the year of assessment during which the penalty is assessed.

 

The penalties will furthermore be imposed by way of a penalty assessment. Any unpaid penalties will be recovered by means of the debt recovery steps.

 

According to the media release, the administrative non-compliance penalties will be imposed for outstanding CIT returns for years of assessment ending during the 2009 and subsequent calendar years. Please note that this will also apply to dormant companies with no receipts or assets.

 

SARS will, however, issue the relevant company with a final demand which will grant the company 21 business days from the date of the final demand to submit the outstanding returns before the penalties will be imposed.

 

Companies may request remittance of the penalties imposed from SARS and have the right to lodge an objection via eFiling should the request for remittance be unsuccessful.

 

The takeaway is that all companies with outstanding CIT returns (whether these companies have assessed losses for those outstanding years or not) should complete and submit these returns as soon as possible in order to avoid the administrative non-compliance penalties being imposed.

 

[1] No. 28 of 2011

 

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)

SARS releases new ruling on documentary requirements for VAT purposes

Tax , ,

In February 2015 the South Atlantic Jazz Festival (Pty) Ltd successfully appealed a judgment of the Tax Court to the Full Bench of the Western Cape High Court (reported as ABC (Pty) Ltd v CSARS [2015] ZAWCHC 8). That judgment dealt with documentary proof required by the Commissioner for SARS to substantiate input tax claims submitted by taxpayers for VAT purposes, and specifically the scope of the provisions of section 16(2)(f) of the Value-Added Tax Act, 89 of 1991.

 

Since the judgment documentary proof linked to VAT input claims have been a focus of Government, with both the subsequent amendment of section 16(2)(f) as well as the introduction of section 16(2)(g). Especially the latter provision is important here and deals primarily with what documentary evidence will suffice as substantiating proof for VAT input claims submitted by a VAT vendor in the absence of for example an invoice received from the supplier, a bill of entry or credit note. The question in ABC above for example was whether a signed agreement could under these circumstances suffice as substantiating proof for an input tax claim submitted.

 

Section 16(2)(g) now reads that “… in the case where the vendor, under such circumstances prescribed by the Commissioner, is unable to obtain any document required in terms of [section 16(2)] (a), (b), (c), (d), (e) or (f), the vendor is in possession of documentary proof, containing such information as is acceptable to the Commissioner, substantiating the vendor’s entitlement to the deduction at the time a return in respect of the deduction is furnished…”

 

SARS has now released a binding general ruling (BGR36) on 24 October 2016 dealing with those circumstances under which the Commissioner will allow a VAT vendor to use alternative documentary proof to substantiate the vendor’s entitlement to an input tax deduction as contemplated in section 16(2)(g). In order to obtain the Commissioner’s approval to use alternative documentary proof in substantiating a deduction under section 16(2)(g), a VAT vendor must apply for a VAT ruling or VAT class ruling.

 

In terms of the ruling, a VAT vendor may only apply for approval under section 16(2)(g) to rely on documentary proof, other than the documents prescribed under section 16(2)(a) to (f), if the vendor

 

  • has sufficient proof that it made reasonable attempts to obtain the documentary proof required by the Commissioner under section 16(2)(a) to (f);
  • was unable to obtain and maintain the documentation prescribed under section 16(2)(a) to (f) due to circumstances beyond the vendor’s control (see below); and
  • no other provision of the VAT Act allows for a deduction based on the particular document in the vendor’s possession.

 

BGR36 continues to list those circumstances when it would be considered to have been beyond the VAT vendor’s control to provide the otherwise required documentation:

 

  • When the supplier has failed to issue a tax invoice, debit note or credit note to the VAT vendor;
  • Where the supplier was contacted but failed to respond to the vendor’s request to be furnished with a complete tax invoice or correct document;
  • The supplier or vendor’s place of business has suffered damage as a result of for example a natural disaster, causing damage to its accounting records, with no possibility of the said records being retrieved or re-issued; or

 

(d) The supplier has been deregistered as a vendor.

 

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)

Changes to Income Tax returns for trusts

Tax , ,

The South African Revenue Service (“SARS”) implemented several changes to the income tax returns for trusts (the ITR12T) on 26 February 2018. These changes apply in respect of the year of assessment ending on or after 28 February 2017, unless taxpayers have already saved or submitted the relevant 2017 ITR12T prior to the implementation of these latest changes.

 

One of the important changes includes the updating of the supporting trust participant schedule to the ITR12T in order to identify loans granted to the trust that are subject to the provisions of the newly introduced section 7C of the Income Tax Act.[1] This section deals with interest-free or low-interest loans to a trust that are made directly or indirectly by a natural person or a company in certain specific circumstances. Should these provisions apply, section 7C deems the interest foregone on the loan to be a continuing annual donation that attracts donations tax. This donation is deemed to be made on the last day of the year of assessment of the trust[2] (which is generally the last day of February) and is payable by the end of the month following the month during which the donation takes effect (which would then be the end of March).[3]

 

Also, trusts that are collective investment schemes or employee share incentive schemes are no longer required to disclose information relating to the details of persons that transacted with the trust. However, all other trusts must ensure that income distributed by the trust to other persons are fully disclosed. Additional validations in this regard were therefore also introduced.

 

Other amendments to the ITR12T include the introduction of a new local income type which relates to dividends that are deemed to be income in terms of section 8E and section 8EA of the Income Tax Act. (These provisions are aimed at penalising debt instruments that have been disguised as equity in order to avoid tax.)

 

The ITR12T also includes a new detailed schedule relating to learnerships for purposes of claiming the deduction in terms of section 12H of the Income Tax Act. Separate disclosure is required for learners with a disability and learners without a disability for both NQF levels 1 to 6 and NQF levels 7 to 10. Also, the number of learners and the allowance amount for each of these fields must be completed.

 

The take away is that trusts should carefully consider these new requirements in order to ensure that the new ITR12T is completed correctly.

 

[1] No. 58 of 1962

[2] Section 7C of the Income Tax Act

[3] Section 60(1) of the Income Tax Act

 

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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