If you do one of these 14 things, you'll set off alarm bells for SARS
Has SARS sent you a request for your statements of assets and liabilities? Well, it isn't as innocent as it seems!
It starts with a seemingly innocent request stating: 'Kindly furnish within 21 days the following: Statement of Assets and Liabilities'.
SARS uses this statement to do a Capital Reconciliation. And ultimately to identify possible undisclosed income over a number of years.
This will verify if you disclose all your income, and includes both local and foreign income! SARS keeps, and can use, the information you supply in your statement of assets and liabilities for three, or even five, years later.
So, be careful! If you've submitted statements of assets and liabilities in the past, you're at risk. Year on year comparatives will highlight capital or asset changes and you might not have declared the Capital Gains Tax (CGT) liability. Or maybe you shifted your wealth to a trust and have a CGT and donations tax risk.
Read on to find out how to avoid setting off 14 alarm bells at SARS...
What SARS looks for
Well, to start with, it determines how you use the funds at your disposal during a certain period. It takes into account all your income (taxable and non-taxable) and 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, any unexplained growth may trigger a full investigation into your financial affairs.
But, Capital Reconciliation isn't an exact science. And because of this, many disputes end up in the Special Tax Court.
Read on to find out how to tell if you're at risk...
How to know if you're at risk
There are 14 red flags SARS will look for on your statement of assets and liabilities. They are:
If you always declare a low level of income from a business that appears profitable.
You're a director or member who always declares a low level of income, e.g. directors commonly declare R100 000 per year over a number of years with no apparent increase in their earnings.
If you accumulate assets (residential property, luxury vehicles etc.) without an indication of any alternative legitimate source of income.
If you're living an expensive lifestyle of frequent holidays, lavish entertainment and high living costs and/or support a large family.
There's insufficient growth in your income so you can't maintain a certain standard of living, taking into account that the cost of living constantly increases and there's no evidence of loans, overdrafts or reduction in favourable bank balances.
There's uncertainty about how your capital has grown or how you financed your living expenses.
SARS suspects you haven't declared all your income.
SARS suspects you claimed private expenses in your financial statements.
Your income decreases or you incur recurrent losses.
You submit a lower estimate of your living expenses to SARS compared to any of your previous estimates.
There's a high growth in your net assets but very little income declared.
You've got a history of undeclared income in previous years.
Comparison between drawings and basic living expenses, e.g. where your drawings are insufficient to cover your basic living expenses.
You earn consistently low business income without any reduction in your assets (assets include cash and bank account values).
There you have it, now that you know what SARS looks for, you can avoid setting off alarm bells at SARS!
For everything you need to know about your tax obligations, simply consult the Practical Tax Loose Leaf Service. With tips to legally pay less tax, red flags to look out for, practical examples and calculations to get your tax correct, you'll never be found on the wrong side of SARS again. Simply click here...