You can now be fined or jailed for small tax mistakes. Here’s a list of the errors to avoid

Apr 30, 2021

New legislation means that inadvertent tax errors could land you with a fine or jail time.

SARS won’t have to prove that you wilfully broke the law when it comes to a long list of offences.

The list includes failing to keep records and not alerting SARS of a change in your personal details.

Inadvertent tax errors – including not alerting SARS of a change in your personal details or failing to keep records from previous tax years – could potentially land you with a fine, or even jail time.

This is the result of an amendment to tax legislation that has scrapped the concept of “intention” from certain tax offences – this means prosecutors don’t have to prove that you wilfully broke the law, and the court can find you guilty of an offence even if you were negligent, or made an unintentional mistake.

In the past, you could only be fined or imprisoned if you committed a transgression “wilfully and without just cause”.

This changed with the new law, which now lists a range of offences where intent doesn’t have to be proven.

Werksmans director Doelie Lessing says the new law split the existing list of non-compliance offences into two categories: one with offences which require wilfulness, where the heavier burden of proof falls on SARS, and the other, offences where “negligence” will be enough to trigger potential criminal liability.

Paradoxically, the latter list of offences is far less serious than the first.

Here’s a list of all the offences which could land you with a “criminal liability” –  even if you did not commit them with intent

• Failure to register for tax or to notify SARS of a change in registered particulars.
• Failure to appoint a representative taxpayer or to notify SARS of a change in representative taxpayer.
• Failure to register as a tax practitioner if required to do so.
• Failure to submit a return or document to SARS or the failure to issue a document to a person as required under a tax Act.
• Failure to retain records as required.
• Failure to comply with a SARS directive.
• Failure to furnish information or documents requested, excluding information requested for revenue estimations.
• Failure to give evidence when required.
• Failure to disclose to SARS material facts required.
• Failure to comply with tax payments including third party payments.
• Failure to comply with withholding tax obligations when required.
• Failure to issue any employees’ tax certificates or to notify SARS of having ceased to be a registered employer.
• Failure by an employer to deliver to any employee or former employee any employees’ tax certificate or notify SARS of having ceased to be a registered employer
• Failure to submit provisional tax estimates.
• Failure to comply with the payment of VAT on imported services and otherwise.
• Failure to submit VAT returns and special records.
• Failure to include VAT in the advertised or quoted price or failure to separately indicate the VAT exclusive price and the VAT inclusive price.
• Failure to keep sufficient records as required.
• For all these offences, it won’t be sufficient for taxpayers to claim a defence of ignorance any longer. “Negligence” will now also trigger potential criminal liability, says Lessing

“The inclusion of the requirement of “negligence” (which is an objective test based on reasonableness), is an audacious move by SARS in that it enables SARS to broaden its non-compliance net in respect of less serious non-compliance offences to such an extent that even the slightest mistake could result in potential criminal liability and imprisonment.

“It is questionable whether it is reasonable for tax legislation to result in potential criminal liability of a taxpayer, absent the element of intent,” Lessing adds.

She warns that, now more than ever, taxpayers must ensure that they respond to any and all SARS correspondence as soon as required and register for tax if required.

Here are the offences which could give rise to criminal liability only if the taxpayer committed them with intent:

• Submitting a false certificate or statement in relation to returns, records and reportable arrangements.
• Issuing an erroneous, incomplete or false document.
• Failure to reply to or answer truly and fully any questions put to the person by a SARS official.
• Obstructing or hindering a SARS official in the discharge of duties.
• Refusal to give assistance during an audit or criminal investigation.
• Holding oneself out as a SARS official.
• Dissipating assets or assisting another person to dissipate assets in order to impede the collection of tax.
• Using any amounts deducted by way of employees’ tax for purposes other than paying it to SARS.
• Issuing documents purporting to be employees’ tax certificates if not an employer or authorised to issue.
• Declaring that the price chargeable in respect of supplies is subject to VAT, where in fact no VAT is payable or charging VAT in excess of the VAT properly leviable.
• Issuing more than one tax invoice, credit note or debit note in respect of a VAT supply.

“In our view it seems nonsensical and completely unjustifiable that SARS is required to prove the higher burden of “intention” in relation to more serious non-compliance offences (such as dissipating assets in order to impede the collection of tax etc.) before a taxpayer can be imprisoned, yet a taxpayer can potentially be imprisoned for merely forgetting to inform SARS of a change in registered particulars,” Lessing says.

A word of thanks to Business Insider for this article.

Can Salaried Workers in South Africa also claim for Home Office Tax Relief?

Apr 30, 2021

The South African Revenue Services has previously allowed the deduction of home office expenses in the determination of taxable income where taxpayers earn mainly commission or are independent contractors and freelancers.

However due to Covid-19, the work environment was forced to make certain changes more rapidly.

“Many employees were forced to work from home, either on a full time or part time basis,” said Elizabete Da Silva EY executive director for People Advisory Services.

“With the change in work culture and remote working, the question was raised by South African taxpayers whether they would be permitted to claim a deduction relating to expenditure incurred in respect of their home office, if they were salary workers.”

In normal working conditions

The situation is different for salary workers, whom in order to claim any home office expenses, the below stringent requirements must be met –

• The part of the home, i.e., the office space, for which a claim is submitted must be occupied for purposes of a trade (which includes employment).
• The office occupied must be specifically equipped for purposes of the trade, e.g. a home study, with a desk, computer, and so forth.
• The employee must regularly and exclusively use the office for business purposes, i.e. it cannot be used for private purposes. If an employee does not have a separate study or office available in their home, home office expenditure will not be allowed as a deduction.
• Employees who do not earn commission but who spend the majority of their time on the road visiting clients, perform their duties mainly at their clients’ premises and as a result they do not qualify for a deduction.
• The employee’s duties must be performed mainly, i.e., more than 50%, in their home office.
• The employer must allow the employee to work from home.

The legislation

It is not difficult to show that a home office expense meets the requirements of the Income Tax Act (ITA), to the extent that the expense is not of a capital nature. This is applicable regardless of whether the taxpayer is in employment, or holding an office or other taxpayers.

Qualifying expenditure under Covid work from home

Normal salary employees are allowed to claim for working at home but will be limited the following pro-rated expenses:

• rent of the premises;
• interest on a bond;
• cost of repairs to the premises;
• rates and taxes;
• cleaning;
• other expenses in connection with the premises;
• phones;
• stationery;
• office equipment; and
• wear-and-tear.

How to calculate your deduction

• Calculate the area of your home office as a percentage of the total area of your home.
• Apply this percentage to the total expenditure in respect of the home, e.g. rent, bond interest, water and electricity, rates and taxes, maintenance.
• Add any other allowable expenditure, e.g. stationery, wear and tear, etc.
• Ensure the calculation is available for SARS inspection, along with all supporting documents (invoices, bond statement, municipal bill, rental agreement etc.).

Capital gains tax (CGT) impact

“When selling your home/primary residence, an individual is entitled to what is known as the primary residence exclusion. This exclusion can be used to set-off the capital gain/loss arising on sale, up to the value of R2 million,” said Da Silva.

When a part of your home is used for trade purposes (i.e. a home office) and a deduction is claimed for trade expenditure, this part of your home is considered tainted for capital gains tax purposes.

Upon the sale of your home the overall capital gain/loss will need to be apportioned between its tainted and untainted elements. This apportionment is done by taking into consideration the portion of the home being used for business/trade purposes and the applicable period claimed.

The primary residence exclusion can only be set-off against the untainted portion of the capital gain/loss and the tainted portion of the capital gain must be fully brought to account.

“In the recent budget address, National Treasury have commented that in light of the significant migration to working from home over the past year, they will be reviewing current travel and home office allowances to investigate their efficiency and equity in application,” Da Silva said.

Thank you to Business Tech for this article