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What is a Capital Reconciliation and how does it affect you?

by , 08 January 2014
From time to time, SARS will ask for a statement of your assets and liabilities. This process is a Capital Reconciliation. Here's what you need to know about a Capital Reconciliation...

Not sure what a Capital Reconciliation is and how it affects you or your business? Then read on. Today we explain what you need to know it.

Here's everything you NEED to know about a Capital Reconciliation

The Practical Tax Loose Leaf Service says a Capital Reconciliation does the following:

#1: It determines 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).

#2: 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. Any unexplained growth may trigger a full investigation into your financial affairs.

#3: SARS usually does it over a period of three to five consecutive tax years.

When will SARS do a Capital Reconciliation?

SARS will request a Capital Reconciliation with your annual tax return.

For companies and close corporations (CCs), you have to include your Statement of Financial Position (balance sheet) on your annual tax return.

If you run your business as a sole proprietor or partnership, this holds true in most cases, and will depend on your tax affairs for each tax year.

Here are four other instances when SARS will do a Capital Reconciliation

  • When you're in the middle of a tax compromise;
  • When SARS investigates or audits you;
  • If you have a pending objection; and
  • If you have a legal tax case, SARS might request this information.

'A Capital Reconciliation is probably the most devastating technique SARS can apply and it's almost impossible to defend,' cautions the Practical Tax Loose Leaf Service.

That's why you must be honest when it comes to your financial affairs.

Keep accurate records and obey tax laws so you won't have anything to worry about when SARS asks for a statement of your assets and liabilities.

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