With almost 3.5 million auto-assessments sent to individual taxpayers just over a week ago, the South African Revenue Service (Sars) is cautiously optimistic that they got it right – this time.
The 2023 tax-filing season opened on 7 July. As in previous years (starting from 2020), Sars sent auto-assessments to taxpayers whose tax affairs are relatively straightforward. Using data collected from third-party data providers – such as employers, financial institutions, medical schemes, and retirement annuity fund administrators – the assessment is generated automatically, without any input from the taxpayer.
In an article published in Business Report last week, the South African Institute of Chartered Accountants (Saica) cited some issues with the previous year’s auto-assessments. Among these were instances where third-party information was found to be incorrect, incomplete, not pre-populated correctly, or missing.
Where third parties do not submit data timeously or the data submitted is incorrect, Sars places the onus on the taxpayer to resolve this with the third party. Saica says, often, this is a struggle for taxpayers.
“Whilst some of these issues may be re-occurring, it is still early in the filing season, so we are waiting for input from members before we can validate current systemic issues. Once we have validated issues, these will be presented to Sars, and Sars would usually investigate and decide on the course of action,” Saica said.
During a Moneyweb@Midday interview last week, Sars head of communications Siphithi Sibeko told radio host Jeremy Maggs that the tax authority was still investigating whether mistakes had been made. He said Sars “would want an almost 100% perfect situation”.
“You have almost 3.5 million auto-assessments, and I know if there’s one, it’s one too many, but one wants to believe that almost 3.4 million to nearly 3.5 million people that have received their auto-assessment, the vast majority have expressed delight and happiness with what they have,” Sibeko said.
Those selected for auto-assessment would have received an SMS or email from Sars between 1 and 7 July. Taxpayers who were satisfied that the auto-assessment was correct and contained all the relevant information did not have to take any action to submit the assessment.
Taxpayers who agreed with the assessment and were due a refund also did not have to take any action. Sars said the refund would be paid in about 72 hours from the date on which the assessment had been issued, provided Sars had their correct banking details.
Taxpayers who owed Sars money must pay by the date on the Notice of Assessment (ITA34).
A taxpayer who believes his or her auto-assessment is incorrect, or that it does not contain information on all sources of receipts and accruals or amounts deductible in the determination of his or her taxable income, must obtain and complete a tax return on eFiling.
A positive change to this year’s filing season is that taxpayers who disagree with their auto-assessment now have until 23 October (the same as for non-provisional taxpayers) to file a revised return. In the prior year, taxpayers had to submit the revised return within 40 business days of the auto-assessment.
Review auto-assessments
Mahomed Kamdar, a tax specialist at the South African Institute of Professional Accountants, encourages taxpayers to use this extra time to review their auto-assessments thoroughly.
Mindful of the fact that tax can be intimidating, he encourages taxpayers to consult tax practitioners even though they have been auto-assessed.
“The danger of spontaneously accepting the outcome of an auto-assessment is that it may not consider all the deductions a taxpayer is legally entitled to.”
One example is when a taxpayer has incurred substantial out-of-pocket medical expenses, be it the acquisition of medicines prescribed by a medical practitioner or surgery not covered by a medical scheme.
“Currently, auto-assessment is not designed to consider out-of-pocket medical expenses. So, if the taxpayer incurs out-of-pocket medical expenses, Sars does not know about it. Taxpayers inform Sars of these expenses via an amended tax return,” Kamdar says.
On the flip side, a taxpayer may also have income from other sources of which Sars is not aware. In this instance, taxpayers are well advised not to “accept” the results of the auto-assessment even though this could reduce their funds or increase their tax liabilities.
“It is important to bear in mind that the result of an auto-assessment can be reversed in the future should Sars uncover the additional income stream. Under these circumstances, Sars could impose the vicious understatement penalty,” he adds.
An understatement is defined in section 221 of the Tax Administration Act as any prejudice to Sars that results from, inter alia, failure to submit a return, an omission from a return, an incorrect statement in a return, or simply failing to pay tax if no return is required.
And for those taxpayers who received a tax refund within 72 hours of their auto-assessment being issued only to find later that certain factors weren’t considered – there is no need to stress. In this case, they too have until 23 October to submit a tax return.
However, Kamdar says, this situation should not occur too frequently.
“The Sars artificial intelligence system should be able to identify a taxpayer who has incurred out-of-pocket expenses in a prior tax year and, therefore, such a taxpayer should not be selected for auto-assessment. The failure to recognise such taxpayers is attributed to glitches in the electronic software system.”
To ensure a smooth tax filing experience while remaining compliant, Kamdar provides the following advice:
The do’s of individual filing
First, determine whether you earn income from sources other than a salary. Once you earn income from sources other than being a salaried employee during the year of assessment, you are a provisional taxpayer.
If a taxpayer was a provisional taxpayer in a prior tax year, there is no guarantee that the taxpayer will be a provisional taxpayer in future, or vice versa. The taxpayer could have changed the nature of their transactions recently, thereby terminating their provisional tax status.
If the status of the taxpayer has changed, the timeframe for the submission of a tax return also changes. This could result in late submission of returns and, consequently, administrative non-compliance penalties can be invoked if the timeframe for the submission of tax returns adhered to is for provisional taxpayers, although the taxpayer is no longer a provisional taxpayer.
Second, you must have all supporting documents that provide evidence for the information submitted in the tax return before submitting the return electronically. In this way, you will not “panic” when audited by Sars because all documentary evidence is already available in a format that can be easily forwarded to Sars. As far as possible, avoid searching for documentary evidence on the eve of a Sars audit.
Finally, confirm that your bank details, IRP5 statements, cellphone numbers, and email addresses are correct. If you find that your tax refunds have been transferred to your “old” bank accounts, Sars will not be responsible for the incorrect destination of a tax refund.
Sars can also impose administrative non-compliance penalties if the taxpayer fails to disclose their correct contact details.
The don’ts of individual filing
Don’t hide non-salaried income from Sars even if you have been auto-assessed. Although the income could be exempt or fall below the threshold, it must be included in your gross income.
It is possible that a taxpayer is auto-assessed and Sars is not aware of his or her other income streams. In these circumstances, the taxpayer should amend the assessment and not “accept” the results of the auto-assessment. The result of an auto-assessment can be reversed if Sars uncovers the additional income stream. In these circumstances, Sars could impose an understatement penalty.
Do not delay submitting your tax returns because of inconveniences such as loadshedding unless there is a valid reason that Sars will accept. Retain documents and other forms of evidence to support the reason for late submission.
Sars holds the view that taxpayers have an advanced knowledge of when loadshedding will occur, and they should work around loadshedding schedules to submit tax returns.
Third, taxpayers should not hide their capital gains after selling their primary residence or holiday homes. This is particularly important for the completion of provisional tax returns.
Disclaimer: The information in this article does not constitute legal or tax advice that is appropriate to every individual’s needs and circumstances.
