Sars ups red tape for small taxpayers

Evan Pickworth

Business Law & Tax Editor

In a perfect world, everyone declares all their income in a transparent way, and tax is paid fairly and equitably But this is not a perfect world and so the aggressive moves by the SA Revenue Service (Sars) to rely on data and analytics and third-party sources to give it information on income in close to real time makes a lot of sense

In this way, the effective tax rates for each taxpayer based on third-party data will make PAYE deductions more accurate, providing clarity, certainty and, hopefully, a sharing of the tax burden across those dwindling numbers who pay their share and the many who don’t

However, any moves towards this near tax utopia for government must be balanced with what is achievable and realistic in practice

For instance, the red tape tax burden for trustees, charitable institutions and even installers of solar photovoltaic (PV) systems at a residence for domestic purposes is rising as the above takes shape at a faster pace than advisers can match

Essentially, this will require extensive third-party data collection by businesses and trustees so that the information can be prepopulated on a beneficiary or recipient s tax return

While greater transparency is to be welcomed, especially where it improves compliance, the timelines and changes for trustees of

September 30 this year are especially tight

Trustees will have to be more vigilant, for sure, but getting compliance up to speed just got a lot tougher

Last year ’ s submission by the SA Institute of Chartered Accountants (Saica) to Sars on the draft business requirements specifications (BRS) documents for trusts (IT3(t)) and donations (IT3(d)) is helpful in highlighting some of the key challenges

Family Trusts

The letter notes that there is a concern that the administrative burden for small family or business trusts and public benefit organisations (PBOs) could be unwarranted

Sars is proposing a near real-time reporting system, which would imply that these taxpayers would need to prepare monthly financial accounts to comply with Sars reporting proposal Most of these smaller trusts and PBOs only prepare financial accounts on an annual basis, after all

Many of these taxpayers may not have the funds to develop the systems or to employ tax practitioners to enable these kind of data submission events

Then there are problems with eFiling declarations, which take time to resolve Often the Sars contact centre is not able to resolve these discrepancies on the first call, requiring additional time and resources to resolve such issues

Furthermore, the cost of implementing an application programming interface would be unduly burdensome for some taxpayers

Saica proposed that Sars consider implementing the reporting responsibility for taxpayers above certain thresholds, in addition to gradually phasing in the representatives to enable these taxpayers to build and facilitate data submissions

In practice, the income earned by trusts is generally from a number of different sources and historically the IT3(s) tax certificates in respect of the various assets are only made available by the various institutions in April/May Some tax certificates, particularly in respect of capital gains, are only received in May/June

The financial statements of trusts are seldom produced by a “live system” and in practice many, if not most, are produced by accountants based on information provided to them by trustees/ administrators distributed by the end of September so that beneficiaries’ tax returns can be prepopulated

Similarly, an IT3(d) will need to be issued by certain charitable institutions (approved PBOs that issue section 18A certificates) in respect of donations received in order for this to also be prepopulated on the tax return This is, however, proposed to apply from the 2024 tax year

SOLAR INSTALLERS

For the 2024 tax year, installers of PV systems at a residence for domestic purposes will need to submit third-party data trustees in other ways too While trustees have always needed to make a determination by way of a signed resolution before the end of February as to the amount of the trust’ s taxable income vested in beneficiaries, Sars is looking at this far more closely Should there not be evidence that this was done before the end of February, the trust will be taxed on the income at the higher tax rate

The reality is that many trustees, for instance of smaller family trusts, are not involved in full-time administration They are running reporting responsibility over a number of years, which does make sense if it takes the reporting burden away from smaller players without the means, time or capacity to pull off the reporting miracle expected of them in such a short space of time

There is instead a need for Sars to provide coherent and easily accessible training to PBOs and trust registered

Given that most of the information used to produce the financial statements is only available in April/May, it will be practically impossible for the financial statements, which are needed to establish the distribution information, to be finalised before May 31

I believe Sars was listening and has given a reprieve of a few months on certain timelines, but the cold reality is this is a major shift coming

A Sars draft notice requires trustees to submit an IT3(t) which provides details of any amount vested in a beneficiary, including income (net of expenditure), capital gains and capital amounts

Apart from the above, trustees need to take heed of amendments to the Trust Property Control Act, which require trustees to, among other things, establish and record the beneficial ownership of the trust

Beneficial owner transparency is one of the measures used to combat financial crimes, including tax evasion

In line with Sars sharpening its teeth on enforcement, failure to comply with the above obligations is an offence and on conviction is liable to a fine not exceeding R10m, or imprisonment for a period of five years or both

The stricter enforcement and timelines apply to

Rate hikes can be even bigger challenge for employers

CONTINUED FROM PAGE 1 the high cost of servicing its existing debts, may constitute an economic reason for restructuring and retrenchments However, if an employer wishes to rely on an economic reason for restructuring, it may be required to disclose its financial and other information to trade unions and affected employees during the consultation process leading to possible retrenchment

Of course, the courts may investigate whether the employer s reasons for restructuring are based on a rational commercial decision, having properly consulted with the trade unions and/or affected employees and having considered alternatives to the retrenchments

If the need to retrench employees arises, employers must heed the Labour Appeal Court s warning, in General

Food Industries Ltd v Fawu, where the court stated that the loss of jobs through retrenchment has such a deleterious impact on the life of workers and their families that it is imperative that even though reasons to retrench employees may exist they will only be businesses or working as professionals by day The raft of compliance changes has radically increased their red tape burden

The key going forward will be to get a good handle on the changes and ensure greater compliance to avoid nasty surprises But Sars must also be realistic on its timelines and what can be done on the ground

The Prime Rate Is The Rate At Which Commercial Banks Lend To Their Most Favoured Customers

accepted as valid if the employer can show that all viable alternative steps have been considered and taken to prevent the retrenchments or to limit these to a minimum

The Bank s responsibility to regulate inflation to stabilise SA s economy is therefore a double-edged sword