At the risk of stating the obvious, we are all connected in this new computer age and, despite potential safeguards, many connections make it possible for other people to connect the dots.Bank transactions are logged, property and share transfers are recorded and vehicle ownership changes are registered, to name but a few.And SARS has access to all these records. Simply staying off their radar is no longer an option unless you are the girl with the dragon tattoo.
While individual taxpayers are entering yet another tax filing season it may be time for a word of warning that SARS already has some of you in its sights and it has the means to target the rest.SARS released a booklet on its so-called Compliance Programme 2012/2013 – 2016/17 which sets out focus areas for enforcement and improvements in tax and customs compliance.One of the major focus areas will be high net worth individuals (HNI) and their related entities, especially trusts connected to these persons.According to the Programme, SARS classifies an individual as high net worth if they, on average, contribute R1.7 million in tax per annum.Based on the 2013 individual tax tables, this translates back to taxable income of more than R4.4 million per annum.
To date SARS has identified a potential 456 wealthy individuals who are not even registered for tax.The Programme also confirms that HNI are generally connected to associated companies and trusts which theoretically increases the tax base associated with these persons, as well as the potential for non-compliance.It is generally accepted in many circles that trusts have been a bit of a bug bear for SARS over the years but despite some relatively small amendments to the tax laws addressing trusts, no major attempt has been made by SARS for a major overhaul of the relevant legislation to provide a general deterrent for the use of trusts.Instead I believe that SARS will look towards the way trusts are administered as a way of attacking the structure and potential tax planning opportunities that exist.
Over the past number of years there have been several non-tax related court rulings that suggested that trusts have been nothing more than the alter-ego of some dominant individuals and that the trusts were therefore a sham. In these cases the courts therefore disregarded the existence of the trust in handing down judgement against these individuals. Offshore trusts have also been identified as another area of risk involving HNI taxpayers.Non-declaration of foreign earnings from these trusts and the use of numbered and secret bank accounts remain rife.Taxpayers involved with trusts should therefore take care in its administration to ensure that no fingers can be pointed to a dominant and controlling individual after the fact.Regular trustee meetings and transparency should be the order of the day. Get your house in order.
Aggressive salary structuring, non-declaration of fringe benefits and income diverted through associated entities have been identified as another risk area.These areas are, however, not only a risk for the individuals but also the employers who allow these discrepancies to continue. SARS therefore has two potential sources of tax revenue to chase in these matters.
The Programme indicates that SARS will increase its enforcement of these areas by better co-operation with the Master’s offices in relation to trust administration, a better exchange of information between South African and other jurisdictions, especially areas normally regarded as tax havens as well as reliance on lifestyle audits.
In its simplest form a lifestyle audit merely looks at the increase in a taxpayer’s asset base from one year to the next and then determines whether the increase in the wealth is reasonable compared to the taxpayer’s income declared and known living costs such as medical aid and retirement contributions and tax payments. Where discrepancies exist, the onus remains on the taxpayer to prove that he or she lived within their means.
The Programme, however, indicates that SARS will encourage voluntary disclosures to be made by these taxpayers to limit the potential tax costs as well as potential conviction for tax fraud.The chance remains that you will not be caught for non-compliance but is it a chance you are willing to take? While SARS may focus on HNI, normal individual taxpayers must not think that SARS will merely look on as they pass by.Be sure that a fair number of you will also be up for some form of investigation by SARS.Get with the programme, get compliant and sleep easy.
Source: By Dirk Kotze, Tax Partner, Mazars (TaxTALK)