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Don't get caught off guard! These are the two things that'll tip a SARS auditor off about discrepancies in your company's income tax

by , 13 June 2013
A SARS auditor will target certain aspects of your business that experience has taught him will commonly highlight discrepancies and help him assess whether or not your compliance is up-to-scratch. It's for this reason that he'll take only two steps to review your company's income taxes to check for any sign of non-compliance. Don't be found wanting....

'Audits are a fact of life and have to be dealt with, but they don't have to be a traumatic and expensive experience,' says The Practical Tax Loose Leaf Service.

In fact, by practicing good compliance strategies and preparing in advance for audits, you can take the sting out of the tail of this necessary evil.

And since a SARS auditor will pinpoint certain aspects of your business to check for any inconsistencies, it's crucial you know what these specific risk areas are.

This'll go a long way in easing the stress factor involved in a SARS audit because 'you can pay particular attention to those facets of your business and make 100% sure no errors have crept in that could incur costly penalties or engage the interest of the audit team,' says the Loose Leaf.

A SARS auditor will take these two steps when reviewing your company's income taxes

1. A SARS auditor will go through your company's computation of taxable income very carefully. He'll do this to check that your company's not trying to avoid taxes, or trying to score with tax deductions and allowances that it's not eligible for.

In doing this he'll make sure that:

  • All items have been correctly transposed from the financial statements.
  • Calculations of allowances and claims are correct and are allowed.
  • That the treatment of allowances granted in previous years has been consistent.

2. Then, he'll review your income statement and any notes you've made. He's going to check:

  • Inter-company transfers and charges. 'Some companies use these to try and lower their tax burdens illegally, so he's going to scrutinise this,' warns the Loose Leaf.
  • That the expenses you've claimed are allowed and are in line with Section 23 of the Income Tax Act. For instance, you're not trying to claim deductions on expenses that aren't made in the production of your income.
  • Large deposits into your company's bank account after year-end, to see if the income was accrued or acquired.
  • Adjustments for prior years, to correct the financial statements.

Remember, a SARS auditor will be interested in every aspect of your company's record-keeping and operations that'll indicate the true state of compliance.

So knowing what a SARS auditor will look for when reviewing your company's income taxes will help you ensure all your affairs are in order.
 

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