Time to get your house in order

"In this world nothing is certain but death and taxes," is a phrase first uttered by US President Benjamin Franklin early in the eighteenth century. More than 300 years later, and taxation remains an integral part of Western society.

We are still sure of death, and taxation is as much a part of life as ever. Even in dying we trigger an estate duty event which requires those who mourn our passing to hand over a portion of our hard earned wealth.

Something less certain is the equality of the tax system. It seems that taxation is a curse borne proportionally more by the poor than by the rich. It thus comes as no surprise that the South African Revenue Services (SARS) is looking for ways to level the playing field.

SARS wants a slice from the super rich

Rampant stock market returns have combined with a stellar property market to generate a record crop of wealthy individuals in South Africa. The latest World Wealth Report estimates that there are 48, 586 dollar millionaires in the country, a number likely to grow steadily in coming years.

While these individuals are not considered 'super rich' they should certainly take note of recent developments at SARS. Because in announcing that they will be investigating the tax affairs of South Africa's financial elite, SARS has sounded a warning bell to those of us who aspire to be similarly wealthy.

The weekend press reveals that SARS has established a special unit to target individuals who rake in more than R7 million a year or have net assets of more than R75 million. While this target sounds unrealistic to the common man, you will probably not be too surprised to learn that SARS is already investigating 267 individuals, and expects the number to swell to more than 500 by year end. SARS was quick to point out they were neither embarking on a witch hunt nor suggesting that wealth equalled tax non-compliance.

Financial statements a good first port of call

Anne Jenkins, senior operations manager of the SARS large business centre admitted that "high-net-worth individuals are not declaring all their taxable income and we're not picking it up because of limited resources. We've seen guys get bonuses in the region of R15 million, but that submission is not tax payable. They have very smart tax advisers."

Jenkins revealed that company financial statements were an excellent first port of call for identifying tax discrepancies. Despite remuneration being publicly declared, many tax returns differed substantially from the published figures.

The advent of the computer and associated advances in administration make it more and more difficult to hide suspect financial transactions from the authorities. Updated legislation makes it almost impossible to unload suitcases full of cash in exchange for luxury goods, as was often the case in the past. Such transactions now attract immediate attention and have to be reported to the relevant authorities.

Impossible not to leave a fingerprint

Banks, deeds offices, financial statements and license registers all maintain records which can be viewed by SARS without too much effort. SARS has also been expanding their data network over a number of years. One technique employed to good effect was the inclusion of lengthy question sections with the annual income tax return. SARS carefully monitors individual taxpayer responses for inconsistencies from one year to the next.

The introduction of Capital Gains Tax has also necessitated that SARS improves their asset tracking and valuation capabilities. If you have purchased a second or third house, you can be sure SARS will be aware of the transaction. Neglecting to declare the purchase could result in serious tax problems down the line.

So, if you own a private jet, have purchased a game farm, or have unloaded a property for more than R20 or R30 million, perhaps SARS has drawn your name from the hat! If you're not quite in this league you can be sure that SARS will be coming for you once they've taken care of the big hitters.

Like it or not, there is nothing you can do to avoid your share of the tax burden. The super rich who use a raft of trusts and offshore companies to hide their wealth, the possibility is these techniques will eventually be stopped too. Eventually everyone will be on an equal footing.

Editor's thoughts:
Owners of private companies often take home millions a year while paying less tax than the majority of their employees. We agree that SARS should investigate the appropriateness of tax legislation that allows this situation to persist. Does the SARS action described in this article constitute an invasion of privacy? Send your comments to gareth@fanews.co.za