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The 7 Biggest ITR12 Fails

24 July 2017   (0 Comments)
Posted by: Author: Nyasha Musviba
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Author: Nyasha Musviba (nyasha@sataxguide.co.za)

As challenging as filing your tax return can be, be sure to take the time to avoid the typical recurring mistakes. Check your tax return against this list of the seven most common errors.

 

1. Completing the tax return without obtaining supporting documents

 

Many individuals wrongly believe that an IRP5 tax certificate is the only supporting document needed when completing the ITR12 for individual tax returns. Not only are there a number of other supporting documents you will probably need, depending on your tax affairs, but you are also required to keep them safely in your possession for at least five years, in case SARS needs access to them in the future.

 

The documents required include the following:

  • IRP5/IT3(a) certificate from your employer (if you have had more than one employer in the tax year, you need an IRP5 from each employer)
  • Medical aid certificate as well as documents required for amounts claimed in addition to those covered by your medical aid
  • Pension and retirement annuity certificates
  • Proof of your banking details (a taxpayer must provide a bank statement not more than three months old and it must also be stamped by the bank). If a taxpayer cannot provide a bank statement he or she must provide an original letter, on a letterhead from the bank, reflecting the bank account details and the date the account was opened (the bank statement or the bank letter should clearly show the name of the bank, the name of the account holder, the type of account, the account number, the branch code and the date)
  • Travel logbook for taxpayers who received a travel allowance
  • Tax certificates (IT3(b)) which you received in respect of investment income
  • Completed confirmation of diagnosis of disability (ITRDD form) for taxpayers or dependants with a disability
  • Information relating to capital gain transactions, if applicable

An individual who incurred medical expenses that were not covered by the medical aid must ensure that they have the prescription or diagnosis from a medical practitioner and the actual proof of payment for the qualifying medical expenses. Medical expense invoices or statements will not meet the requirements of SARS. (Note that a diagnosis of disability must be done by a qualified medical practitioner to confirm the physical disability status of a taxpayer or dependants with a disability.)

 

If a taxpayer fails to submit supporting documents requested by SARS, an adverse assessment will be done. This might leave the taxpayer owing money to SARS. Individuals must ensure that they have the supporting documents before they complete and submit the ITR12 tax return.

 

2. Assuming you will automatically get a refund

 

Most individual are motivated to file their tax returns when they believe that they will get a refund from SARS. On the contrary, taxpayers are required to file an ITR12 if they exceed a certain income threshold (for 2017, it is R350 000.00) or if they have more than one employer.

 

Taxpayers should avoid using the services of people who guarantee a refund from SARS. An even worse situation is a taxpayer who understates or overstates income in their pursuit of a refund. This is a criminal offence.

 

3. Using the wrong source codes

 

Many adverse assessments are the result of the use of wrong source codes. Individuals should take extra care when completing the ITR12 tax return because each source code has a different tax implication. For instance, certain income received by the taxpayer might be exempt from tax; however, if a taxpayer uses a source code for taxable income, he or she will be assessed for tax.

 

If the wrong source codes were used, it will leave the taxpayer with the burden of submitting a notice of objection. This process is technical in nature and, as a result, the taxpayer might have to pay for the services of a tax practitioner.

 

Source codes can be found on the SARS website by following this link at: sars.gov.za/TaxTypes/PIT/Tax-Season/Pages/Find-a-Source-Code.aspx

 

4. Not understanding the ITR12 return fields on eFiling

 

Taxpayers often complain that the online ITR12 has too few fields to complete all the information compared to the manual ITR12 tax return. It is important to note that the ITR12 tax return available on eFiling must first be generated by correctly answering the applicable questions on the first page, when starting a return on the return wizard. For example, the first page will ask a taxpayer if he or she incurred medical expenses. If the taxpayer selects a “no” on this question, the relevant medical expenses field will not be created.

 

Some common questions asked on eFiling include:

  • How many certificates did you receive?
  • Did you make any retirement annuity fund or income protection contributions? (Select “Y” or “N”.)
  • Do you want to claim expenditure against a travel allowance? (Select “Y” or “N”.)
  • Did you receive remuneration for foreign services rendered? (Select “Y” or “N”.)

5. Not declaring other income received during the year of assessment

 

All the income received by an individual during a specific tax year must be declared on the ITR12 tax return. Employees usually only declare income reflecting on IRP5 tax certificates and ignore income received from other sources, such as rental income.

 

A taxpayer who did in fact earn other income not reflected in his or her IRP5 and does not declare it on the ITR12 will be faced with a dilemma when SARS asks for bank statements as part of the supporting documents. His or her bank statements will show that the taxpayer indeed received other income which was not declared to SARS and SARS will issue an assessment which is adverse to the said individual. The adverse consequences of such an assessment include charging severe penalties for understating income.

 

Taxpayers have a tax obligation to ensure that a full and accurate disclosure is made of all their relevant information, including all income received, as required in the income tax return. Misrepresentation, neglect or omission to submit a return or supplying false information is liable to penalties, additional assessments and, in some cases, criminal prosecution.

 

6. Provisional taxpayers failing to file provisional tax returns

 

Some taxpayers are automatically registered as provisional taxpayers. This, in turn, creates an obligation for them to file provisional tax returns as well as the final ITR12 tax return. Failing to file the provisional tax return when it becomes due will make the taxpayers liable for interest and penalties.

 

There is no formal registration needed to be a provisional taxpayer. A provisional taxpayer is any person who derives income, other than from employment; or any person who is notified by the commissioner that he or she is a provisional taxpayer.

 

Directors of private companies and members of close corporations are regarded as employees; therefore, they are not required to automatically be registered as provisional taxpayers unless they have income that falls within the scope of provisional income.

 

A provisional taxpayer is required to submit two provisional tax returns (IRP6) in a year of assessment, based on estimated taxable income. The first return is due by 31 August and the second by 28 or 29 February.

 

7. Choosing to manually submit

 

When completing an ITR12 return, a taxpayer should use an electronic submission through eFiling. The easiest and quickest way to file ITR12 tax returns is online by using SARS’ eFiling. However, taxpayers must first register for eFiling on the SARS eFiling website.

 

There are a number of advantages to eFiling. For instance, the taxpayer is given the opportunity to save their return and file it later when they are ready to do so. Taxpayers also have the opportunity to use the tax calculator function to receive a pre-assessment of their submission, before a final assessment is done. Furthermore, a return filed via eFiling makes it easier to respond to a SARS audit or verification. Submitting a return through eFiling also gives taxpayers a full history of all submissions, payments and electronic correspondence available at the click of a button. In addition, submission via eFiling saves taxpayers time as they will no longer have to wait in long queues at a SARS office when the tax filing season commences. 

 

Please click here to complete the quiz.

 

This article first appeared on the July/August 2017 edition on Tax Talk. 


 

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