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FAQ - 11 September 2014

10 September 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Must an independent review of financial statements be reported to SARS? 

Q: In doing an independent review you get instances where it’s necessary to comment on non-compliance (this is called a matter of emphasis). On the tax return, where an audit report is qualified the box needs to be ticked. Is the matter of emphasis the same as a qualified audit report? If the independent review is requested after the relevant tax return has been submitted and assessed is the accountant bound to inform SARS and resubmit the tax return?

Our client, a close corporation, has been requested by the Department of Trade and Industry (DTI) to have an independent review of their 2013 accounts. There is a possibility that a matter of emphasis is likely to arise.

The words on SARS website refer to "audit" and "qualification", which are not synonymous with independent reviews. It is our opinion that it is unnecessary to inform SARS or reopen the 2013 tax return.

A: We agree with your view that an ‘independent review’ is not an audit and a ‘matter of emphasis’ is also not a qualification in an audit report. We don’t know what the matter is that will be reported in the report.  SARS can require a person who submits financial statements or accounts prepared by another person in support of that person’s submitted return, to submit a certificate or statement by the other person setting out the details of—

a)  the extent of the other person’s examination of the books of account and of the documents from which the books of account were written up; and

b)  whether or not the entries in those books and documents disclose the true nature of the transactions, receipts, accruals, payments or debits in so far as may be ascertained by that examination.  

This is in terms of section 28(1) of the Tax Administration Act.  

It terms of this we submit that the person doing the independent review does not have to point the fact that an independent review was done subsequent to the submission of the return.  The accounting officer’s report did accompany the financials if it was submitted to SARS.  It is only if requested by SARS (in terms of section 28 as indicated above) that the person will have to provide the detail required by SARS.  

If the review shows that the taxable income and related detail declared in the return is not correct it would be advisable to request the client to correct the original return.

2. Provisional tax underestimation penalties due to a change in a company’s financial year end 

Q: Our client is a company which had a February year end for 2014 but in April 2014 the year-end was changed to April. Thus the 2014/02 provisional tax was calculated based on the 12 month period 1 March 2013 to 28 February 2014. Financial statements will, however, be drawn up for the 14 month period 1 March 2013 to 30 April 2014, making the 12 month provisional tax paid insufficient, thereby resulting in underestimation penalties being levied by SARS. We would like to know whether we will be able to object to these penalties as well as how one should deal with this specific situation. For example, should one make a top up (third) voluntary payment? 

A: We are not sure if the statement that ‘the year end was changed to April in April 2014’ refers to the approval of the change by CIPC.  In the definition of ‘financial year’ found in section 1 of the Income Tax Act, the company needs approval from SARS to change its financial year on 30 April.  If this was not obtained the previous year end (last day of February) stills stands.  

In addition to this approval the company must also specifically request SARS to change the provisional tax dates /returns to 30 April.  If this was not done SARS will not be able to process the IRP6 for April as it will not have issued one.  

If SARS has approved the year end and the new second date for provisional tax and the return was not submitted (and paid by 30 April) a late payment penalty will be levied.  

The grounds for objection against an underestimation penalty (we don’t know if the taxable income is above R1 million) is found in paragraph 20 of the Fourth Schedule – serious calculation.  

A voluntary payment after 30 April will not reduce the underestimation penalty.  

3. Whether the section 18A deduction is applicable when donating to a foreign entity administered in South Africa

Q: During the 2014 tax year my client donated R2 000 to the Zimbabwe Pensioner Supporter Fund. Would this amount be deductible from his income here in South Africa, even if the money is used in another country? The Zimbabwe Pensioner Supporter Fund is administered from South Africa.

A: The deduction will only be allowed if, amongst others, it is made to a qualifying PBO (see below) and the deduction must be supported by a receipt issued by the public benefit organisation, etc.  It is unlikely that the Zimbabwean entity will be able to issue such a receipt.   

The qualifying entities are:

any--

i) public benefit organisation contemplated in paragraph (a)(i) of the definition of "public benefit organization" in section 30(1) approved by the Commissioner under section 30; or

ii) institution, board or body contemplated in section 10(1)(cA)(i), which

aa) carries on in the Republic any public benefit activity contemplated in Part II of the Ninth Schedule, or any other activity determined from time to time by the Minister by notice in the Gazette for the purposes of this section; and

bb) complies with the requirements contemplated in subsection (1C), if applicable, and any additional requirements prescribed by the Minister in terms of subsection (1A);

b) any public benefit organisation contemplated in paragraph (a)(i) of the definition of "public benefit organization" in section 30(1) approved by the Commissioner under section 30, which provides funds or assets to any public benefit organisation, institution, board or body contemplated in paragraph (a); or 

bA) any agency contemplated in the definition of ‘specialized agencies’ in section 1 of the Convention on the Privileges and Immunities of the Specialized Agencies, 1947, set out in Schedule 4 to the Diplomatic Immunities and Privileges Act, 2001 (Act No. 37 of 2001), which—

i) carries on in the Republic any public benefit activity contemplated in Part II of the Ninth Schedule, or any other activity determined from time to time by the Minister by notice in the Gazette for the purposes of this section;

ii) furnishes the Commissioner with a written undertaking that such agency will comply with the provisions of this section; and

iii) waives diplomatic immunity for the purposes of subsection (5)(i); 

c) any department of government of the Republic in the national, provincial or local sphere as contemplated in section 10(1)(a) to be used for purposes of any activity contemplated in Part II of the Ninth Schedule.


 

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