If you think an increase and decrease in your capital means nothing to the tax man, you're wrong.
Capital reconciliation: An increase and decrease in your capital indicates the following to SARS
#1: According to the Practical Tax Loose Leaf Service, an unexplained increase in your capital usually shows you haven't declared your income. This may also mean there will be Vat implications if this income was due to undisclosed income.
#2: An unexplained decrease in your capital may indicate you made a donation, or that you didn't disclose capital gains.
What's more…It could also indicate you bought an income-producing asset and didn't declare it on your tax return.
An unexplained increase and decrease in your capital with put you under SARS' microscope!
When it comes to capital reconciliation, the burden of proof rests on you!
You have to give SARS proof that your facts are accurate.
Also keep in mind that SARS doesn't do capital reconciliation to victimise you.
It just wants to determine how you use the 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).
That means, if your financial affairs are in order and you have proof to back everything up, you have nothing to worry about when SARS asks you about a decrease and increase in your capital.
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