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Make sure SARS doesn't see your business transactions as tax avoidance!

by , 21 February 2013
The G20countries are clamping down on businesses that find loopholes to pay less tax. And last week's State of the Nation Address confirmed SARS is on the look-out for any form of tax avoidance to penalise you, as it's desperate to fill up its coffers. Here's how to make sure your business transactions will stand up to SARS' scrutiny as legal and not as tax avoidance...

On Saturday, the G20group of the world's top economies said they'll crack down on companies that duck their full taxation responsibilities with elaborate tax avoidance schemes, says Fin24.
 
The countries have run out of patience with big firms shifting profits to be registered in tax havens like the British Virgin Islands, Barbados and Bermuda as they look to inject new funds into their own budgets.
 
Since South Africa is part of the G20, you can expect SARS to play along.
 
Especially as President Jacob Zuma made brief mention of a study into the country's current  tax policies in his State of the Nation Address last week, reports Moneywebtax.
 
For business, paying more tax 'would be a double whammy as they have to pay higher taxes and also their consumer market comes under pressure,' said Neren Rau, CEO of the South African Chamber of Commerce and Industry.
 
So anything seen as 'tax avoidance' won't be taken lightly by SARS.
 
And if your business is found guilty of tax avoidance, you'll pay a 200% fine, even if you innocently entered into transactions to try get a little tax relief, says Natalie Cousens of the Tax Bulletin.
 
Here's what SARS will look for when assessing your business for tax avoidance

The main thing SARS will look for is if your transactions are abnormal, meaning they differ from transactions you'd enter into for commercial purposes.
 
An example of this would be a transaction that your business only gets a tax benefit from or a transaction that lacks commercial substance.
 
In both of these instances, your business would have a significant tax benefit but there's no effect on your business risks.
 
Keep accurate records for five years showing all calculations to prove you didn't intend to evade tax

You'll need to make sure you apply tax law provisions correctly, like subsistence allowances for your employees who travel.
 
You can back up that you've done this correctly by making sure every calculation is recorded and that you keep these records for five years, in case SARS decides to do a tax audit  of your business.
 
This way, you'll be able to prove to SARS that you didn't intend to evade tax.

Did you know there are 40 business tax risks your business could face daily. Make sure you know how to minimise your business tax risks so that your business don't become a red flag for SARS...


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