Tax return season – South Africans urged to improve record keeping

The South African Revenue Services (SARS) can approach any financial institution requesting information for purposes of conducting an audit on an individual in the event that non-compliance is suspected.

Tony Barrett, a senior Wealth Advisory Relationship Manager at RMB Private Bank, believes governments across the world are tightening tax collection measures to ensure compliance from taxpayers. He says of utmost importance is for taxpayers to ensure they disclose and provide accurate information when interacting with SARS.

According to Barrett, an increasing number of people mistakenly omit certain details when completing a tax return, especially where Capital Gains Tax (CGT) is concerned. CGT is a relatively new tax, only having been implemented in 2001, but it is only now with the appreciation in assets over the last 12 years that this tax is starting to get real teeth.

“It’s important to note that CGT affects anyone who owns an asset. If the asset has grown in value between the time of purchase and point of sale, CGT will apply to the capital gain. CGT is not applicable on items that are for personal use, such as clothes, a car or jewellery. For example, CGT will apply when one sells a second home that had been bought as an investment, a percentage of the profit made from sale of the asset will be taxed,” adds Barrett.

Assets held offshore such as shares, property and investments are not treated any differently and must be declared to SARS for CGT purposes as profits made from selling offshore assets is taxed on two levels – the actual gain and the exchange rate gain made on current exchange rate movements over which the asset was held. South African tax residents are taxed on their world-wide income and capital gains even when the money was not repatriated back to South Africa.

Most important to understand about CGT is the base cost, the amount for which an asset was bought and the realisation value, which is the value of the asset upon being sold. Barrett says because of poor record keeping, people often provide SARS with wrong figures and this can cause unnecessary problems for taxpayers.

“SARS has developed into a highly efficient arm of government and taxpayers are warned not to be penny wise and pound foolish. If necessary, one should seek professional advice when completing a tax return as certain aspects of this process can be quite complex. This has made it all the more important to provide clear information on one’s return as vague details could have far reaching consequences. In the event where a statement of assets and liabilities are required the values must be disclosed at historical cost values and not current values” adds Barrett.

South Africa’s Tax return season starts officially on the 1 July 2013. It’s important to remember that tax law is the only law in the land where one is presumed guilty until proven otherwise.