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The eight things SARS looks out for when it does capital reconciliations

by , 23 April 2015
If SARS sends you a letter asking for a statement of your assets and liabilities, you will find this very useful. After all,SARS asked you if you declare this information on your tax returns, you should know that SARS uses this information to do it's own capital reconciliation of your business!

Down below you'll find the eight things SARS looks out for when it decides to do a capital reconciliation:

The eight key points SARS looks for on your capital reconcilliation


1. Movement in capital not related to profit and loss from your business.

This can be dividends declared or shareholders/members drawings. Dividends tax should be paid on dividends declared.

2. Interest free shareholders loans in a debit balance.

This means, you received money from your business without paying dividends tax or declaring it as part of your income.


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3. SARS only allows a certain wear and tear/depreciation rate depending on the type of asset.

If you've depreciated more than this allowed rate, the difference should be added back and you'll only get the allowed deduction in that specific year.

4. Bad debts written off as well as provision for bad debts provided for. Bad debt written off can be of capital nature (if it relates to long term loans) and not allowed for a full income tax deduction in a specific year. Provision for bad debt is only allowed at 25% of the debtors balance for the year. Any provision higher than this amount won't be allowed as a deduction and should be added back.

5. Repairs and maintenance expensed that actually relates to improvements that should be capitalised and written off over a period as allowed by SARS.

6. Capital legal fees that shouldn't be expensed.

7. Interest written off that actually relates to SARS penalties and interest paid that isn't allowed as a deduction.

8. Creditors/provisions provided for that's not allowed in terms of the Income Tax Act. I.e. revenue received in advance because revenue should be recognised when it's invoiced and received and can't be deferred.

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