In last year’s Budget Speech, it was announced that the South African Revenue Service (Sars) would set up a specialised High Wealth Individuals’ Unit (HWI Unit) that would provide the necessary attention and service to high net worth (HNW) taxpayers.
This year’s Budget Speech showed the hand of Sars’s audit strategy with the announcement of the special disclosure requirement for taxpayers with assets above R50 million. This is proposed to take effect in 2023, when all HNW taxpayers must disclose their assets and liabilities at their respective market values.
However, the HWI Unit has already sent out pre-audit questionnaires in the form of compliance verifications to targeted HNW taxpayers. The questions provide insight into the 2023 HNW disclosure and are telling of possible areas of high risk or non-compliance for HNW taxpayers.
Sars is focusing on lifestyle and investment assets and is targeting the following areas:
- Fixed properties, including when held in private companies, trusts or other structures;
- Shares in private companies and close corporations;
- Interests in trusts;
- Complex financial arrangements, including loan accounts and financial instruments;
- Vehicles and boats;
- Farming interests; and
- Offshore assets or holdings.
The request normally covers a three-year period, and Sars provides a standard format for the taxpayer’s response. This provides an easy reconciliation of what a taxpayer disclosed in previous tax filings with how the taxpayer’s assets have increased or decreased in value.
What to do when you get a Sars request
Taxpayers must provide Sars with the requested information within 21 days. The request reminds taxpayers that it is an offence to declare false information, and failure to provide information and/or answer questions is administratively and criminally sanctionable.
HNW taxpayers cannot afford to botch their responses. Sars has a vast amount of third-party data at its disposal, including the OECD’s Common Reporting Standards, whereby financial information is shared among countries.
A good starting point to ensure compliance is to have a tax diagnostic performed on your eFiling profile, to understand whether your optics are correct regarding your position with Sars vis-à-vis your assets and liabilities.
This step ensures that taxpayers can regularise their tax affairs and self-correct through the Voluntary Disclosure Programme (VDP). The VDP eliminates the possibility of severe sanctions and provides amnesty from criminal prosecution. However, the VSP is available only before Sars comes knocking on the door.
Colleen Kaufmann is a tax specialist and admitted attorney at Tax Consulting South Africa.
Disclaimer: This article is published purely for informational purposes and does not constitute financial or legal advice.