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ARE YOU A TARGET FOR SARS’ VERIFICATION AND AUDIT PROCESS?

Article © CA(SA)DotNews by DotNews

Over the past few years, SARS has accumulated a lot of data on taxpayers and has improved its systems in terms of using this data to pick up errors or omissions by taxpayers. Legislation has enabled Revenue to increase its interrogation powers. SARS has substantially escalated the verification and audit process

The number of audits conducted in 2012/2013 rose by 42% over the previous year. 15% of taxpayers were audited in 2012/2013.Many taxpayers will have received a verification query after completing their 2013 returns. Taxpayers need to understand that this is the beginning of a process that could lead to paying more tax and/or becoming embroiled in an alternative dispute resolution procedure, objection and appeal, a tax audit and finally appearing in court.
Be warned: The rules have changed

Clearly, there is a greater onus on corporates and individuals to further apply themselves when completing returns. Taxpayers must also organise and have their documentation available for verification purposes.

If in doubt, this is an appropriate time to seek advice from your accountant or tax practitioner.

What “triggers” the verification process?

SARS keeps this confidential but analysts have picked up on some trends. When doing your annual tax return, watch for the following:

  • If you claim medical expenses, ensure you have proof of payment. If you read SARS’ notes on how to complete your return, they are looking for evidence of payment. Just showing invoices may result in your claim being denied.
  • If you claim a study allowance expect to be asked to justify the expenses claimed.
  • Car and travel allowances are also targets for verification. SARS often ask to see your logbook – if it is not completed as per SARS’ requirements your deduction will not be allowed.  Be careful when claiming a car allowance – for example unless the employee bears all the cost of fuel and repairs, then he/she is not allowed to claim any expenses at all. Thus, if the car holds a service warranty, then no repairs may be claimed for tax by the employee.
  • If you own a second property and use it for trade purposes, be careful with repairs and maintenance. SARS will scrutinise these to ensure that you can prove that they are not expenses incurred on your primary property.
  • Large refunds may also trigger a verification process, so have your documentation ready.

On e-Filing, there is a place to upload documents. If you fall into any of the above categories, it makes sense to be pro-active and include documentation to justify the above expenses. Take advice on how to present this documentation – remember you want to end the verification process quickly to prevent it escalating.

Factors that may trigger an audit   

  • SARS have been investigating high net worth persons and has already identified 467 of them for further investigation.
  • Areas where SARS deems there is high risk of losing tax revenues may set off an audit process across the relevant industry.
  • Tip offs – SARS will act on tips from the public.
  • Random selection of taxpayers.
  • Instances where SARS’ databases across all types of tax indicate discrepancies.

Be warned and be prepared – the rules have changed for taxpayers.

 

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