If you can't answer these three questions, SARS will send you to jail.
You can legally structure your tax affairs to pay the minimum amount of tax.
But SARS won't let you get away with avoiding your tax obligations completely. That's outright tax avoidance which is a criminal offence!
So to determine whether or not you're trying to avoid tax or gain from a tax benefit, SARS will ask you these three questions. If you can't answer the questions, then you're guilty of tax evasion, SARS will send you to jail.
Read on to find what these questions are...
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Three Questions SARS asks when it screens your transactions/arrangements
1. What was the effect of the transaction?
SARS will look for evidence that you tried to avoid paying tax or to reduce your tax liability.
If there are two ways to achieve the same commercial outcome and you choose the one that offers a reduced tax liability, SARS can claim you're intentionally seeking tax-avoidance benefits.
2. What was the manner of the transaction?
Would a reasonable business mind find fault with the transaction? Are the parties involved independent of each other, so there's no question about a conflict of interests or benefits for friends!
3. What was the main purpose of the transaction?
Was it to hide your real intentions to escape the tax net or to score a tax benefit you're not entitled to?
You'll be found guilty of general anti-avoidance if you can't give SARS suitable answers to the above three questions.
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What happens if you're found guilty?
You only have 60 days to reply to the commissioner's notice;
When SARS applies the provisions of general anti-avoidance, the Commissioner must give you notice that SARS wants to invoke the anti-avoidance provisions. It must give you reasons why it's doing so;
You have 60 days to reply to the notice, in writing. You can request an extension during this time;
If SARS finds you guilty it's your responsibility to prove your transactions main aim wasn't to get a tax benefit;
You should consult a professional tax advisor before you respond to such a request because legal implication are numerous and complex;
Within 180 days of receiving your reply, the Commissioner must raise further queries (including the request for additional documentation), withdraw the notice or invoke the general anti-avoidance rules. The normal objection and appeal procedures apply; and
If SARS doesn't stick to this timeline, you can approach the SARS Service Monitoring Office.
SARS will waive the 200% penalty or imprisonment if you can prove you're innocent but won't waive the interest charges.
Turn to chapters D04 and O02 in your Tax Loose Leaf
to find out about this form of dispute resolution and objection.
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