What is a tax compromise?
A tax compromise is only for taxpayers who legitimately can't pay their tax debt, and who have no prospect of paying their tax debt in the near future (within 12 months).
Pay attention to the fact that this isn't a mechanism taxpayers can use when they just don't have money in the bank now. Or need to spend money they do have on other things (like paying staff).
How does the tax compromise process work?
It's actually very simple, but the challenge comes in when you prepare for the execution. Here's the process you need to follow:
If you can't pay your tax debt and apply to SARS for a tax compromise, you'll make an offer to SARS for a settlement amount.
It's fairly straighforward unless SARS rejects you for one of the following reasons...
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Here are the seven instances when SARS won't consider a tax compromise!
Before you start a tax compromise application, it's important to note that in terms of Section 203 of the Tax Ammendment Act
, SARS won't even look at your application if:
1. You've already applied for (and were granted) a tax compromise within the last three years from the date of your application;
2. Your tax affairs aren't up to date;
3. You're already being sequestrated or liquidated by another creditor;
4. The compromise could prejudice other creditors (unless the creditors consent to the compromise);
5. The compromise could benefit other creditors relative to SARS;
6. The compromise could affect a broad range of taxpayer compliance. For example, SARS decides to overlook the fact that you're a terrible taxpayer, as you haven't submitted a tax return since 1984. If it shows leniency to you, all other compliant taxpayers could see this as SARS being too lenient and they may not submit their returns because they're hoping SARS will just compromise the tax debt); and
7.If your business is a Trust or a company, SARS hasn't first explored action against recovering the tax debt from the personal assets of anyone who's possibly liable (Chapter 11 of the TAA)
, which is collection of a tax debt from trustees, shareholders, third parties, through the courts, or liquidation/sequestration.
Useful tip! To ensure your tax compromise is granted, help SARS tick off all of these points by giving it sufficient and appropriate information to prove your case doesn't fall under one of these criteria.