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Capital Reconciliation: 3 points to remember when SARS queries an unexplained increase

by , 10 February 2016
From time to time SARS will ask for a statement of your assets and liabilities. This process is known as a Capital Reconciliation.

In this process, SARS determines how you use funds at your disposal during a certain period by taking into account all your income (taxable and non-taxable) and your expenditure (deductible and non-deductible).

SARS reconciles the numbers in the opening and closing balances of your statement of assets and liabilities with the income you disclose on your tax return.

And if there's any unexplained increase in your income here, it can very easily indicate that you haven't declared your income, and SARS may issue you with a query.

Now, if SARS issues you with a query, here are 3 VERY important points for you to keep in mind...


SARS MUST give you an opportunity to explain the apparent 'unexplained' amount.

The most common attempt is to try and prove receipts are of a capital nature, which means the unexplained increase wouldn't be taxable.

Remember that the onus is on YOU to prove whether the unexplained increase is accurate, how exactly you financed it and whether it
represents receipts of a capital nature.

In other words, it's up to you to make explanations, and provide evidence for them.

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If you claim that the capital increase is from bequest or inheritance, you must substantiate this with documentary evidence. E.g. A copy of the will, The Executor's final reconciliation etc.


If you make a donation to a trust each year as part of your estate planning, ensure you have a written declaration of the donation.
*Remember that if you can't provide a satisfactory explanation, the capital increase will be subject to tax and penalties of 200%!

What's more is that if SARS suspects evasion, they'll open up a criminal investigation.

To learn more on Capital Reconciliation, turn to chapter C08: Capital Reconciliation in your Practical Tax Loose Leaf Service handbook, or click here if you don't already have it. 

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