Johannesburg - High-net-worth individuals (HNWIs) would find
themselves under greater scrutiny from SARS in the immediate future, said Jerry
Botha, Managing Partner at Tax Consulting South Africa.
“In reviewing the SARS
Annual Performance Plan for 2017 to 2018, one will notice that
they have highlighted low compliance of HNWIs as a strategic risk,said Botha.
He said that notes this was in
addition to the 12% of taxpayers on the register which SARS would audit for the
next year.
The South Africa 2017 Wealth
Report, published by Research and Markets, indicates that the country is home
to some 40,400 HNWIs with a combined wealth of US$171-billion. If many of these
individuals are not meeting their tax obligations, as SARS believes, a
substantial amount of revenue is being lost per annum.
SARS upping its detection abilities
SARS’ response to this perceived threat to revenue collection will be to
“develop and acquire capability to effectively tackle HNWIs and their related
trusts, and redefine taxpayers in this segment.” The document also states that
one approach the tax authority will take to enforce compliance is “increased
and targeted audits”. The text goes on to say that 130 HNWIs can expect to be
audited in the 2017/2018 tax year.
SARS has also committed
itself to complete its implementation of the Organisation for Economic
Cooperation and Development’s (OECD) Common Reporting Standard (CRS) by end of
December 2017. This means that there can effectively no longer be offshore
hidden money, as the world has followed the United States’ lead in forcing
disclosure by financial institutions of any account owned or otherwise connect
to South African residents or citizens.
Legislation to tackle loopholes
Apart from SARS’ activities, new legislation is being developed to close
loopholes that are often exploited to reduce one’s tax obligation. A recent
example is the Taxation Laws Amendment Act 15 of 2016 that redefines the
forgone interest on low-interest or interest-free loans to a trust as a
donation, thereby making the lender liable for donations tax.
“My advice to every High Net
Worth Individual is to realise that their options for avoiding taxation, legal
or otherwise, are shrinking,” said Botha. “It’s important that they get their
financial affairs in order and, if necessary, make use of the leniency SARS is
offering in terms of voluntary disclosure.
The most effective measure
is that High Net Worth Individuals should self-audit their structures and ask
themselves the tough questions. Once SARS asks these questions and you are
found wanting, the penalty regime means your penalties alone will mostly be
more than the actual taxes.
As far as this
self-disclosure is concerned, Botha is referring to SARS’ Special Voluntary
Disclosure Programme by which taxpayers can reveal undeclared income at reduced
penalties and without fear of prosecution. However, he warns that the final
date for this allowance is 31 August 2017, so those wishing to take advantage
of it should act promptly.
Be Prepared
As financially astute as they are, wealthy individuals should be wary of
approaching tax matters unprepared, whether it’s an audit, voluntary disclosure
or other related issue. There are cases where a special voluntary disclosure is
not required and a standard voluntary disclosure will suffice. When being audited,
offering the right answers to an auditor’s pointed questions makes all the
difference to the outcome.
Understanding the nuances
and configurations of an ever-changing tax landscape and how to respond to them
is key to wealth preservation. Botha urges those of high net worth to engage a
strong legal, financial and tax team. “Having dealt with HNWIs and complex tax
matters over the years,” observes Botha, “I can confidently say that those who
have a strong team of specialists are better prepared to handle any
eventuality.”