By Marc Sevitz and Colin Wolfsohn
In what seems like the blink of an eye, the tax season is already almost three months in and we have seen quite a number of areas where both tax practitioners and taxpayers need to be on the look-out when preparing and submitting tax returns.
On 2 July 2018, SARS released their much-awaited Service Charter, which outlines their pact with taxpayers going forward. The Service Charter highlights the most important timeframes for registration of taxpayers, submission and verification/audit of tax returns, and refunds paid out. The provision of these timeframes has provided those in the profession and taxpayers themselves with some comfort, as we now have a written set of dates to which we can refer.
The other important development this tax season − and arguably the most important − is the shortening of the filing season for all non-provisional taxpayers. Instead of the third week in November, the date has now been set to 31 October. In return, SARS has made assurances that refunds will be processed quicker and that this will assist in speeding up the administrative processes for tax returns that are unfortunately subject to verifications and audits. Furthermore, SARS had promised that any letters requesting documents would now contain specifically what is required from the taxpayer, thereby removing the generic letters previously sent out which only confused taxpayers and provided little relevant information. However, despite this being the situation for the first few days of the current filing season, the old generic letters have unfortunately returned.
In the many thousands of tax returns we have seen since filing season opened there have been some important areas that bear highlighting when returns are filed for the remainder of the season.
Medical aid contributions are constantly being queried by SARS, who require taxpayers to provide proof of payment/contributions to the medical aid. SARS is requesting bank statements indicating proof of payment and in some instances even when the contribution was paid via a deduction from the taxpayer’s remuneration −that is, not directly from the taxpayer. In this instance, it is important to remember to ask the medical aid itself for a proof of receipt of the taxpayer’s monthly contributions as evidence to provide to SARS. Where the taxpayer does make monthly payments directly, but this is in the form of a debit order, SARS will require a letter from the medical aid stating the banking details that they debit each month. Granted, this situation does not occur in all taxpayer verifications, but when it does occur, it is prudent to obtain all these documents and submit them to SARS rather than going back and forth with disallowances and further requests.
We are also seeing situations where, although this information is already captured on eFiling when ITR12s are issued, taxpayers are not submitting all their documents to SARS upon request. IRP5s, RAF certificates and medical aid contribution certificates must always be submitted when taxpayers are subject to verification, regardless of whether the information already exists on the tax return.
Taxpayers wishing to claim medical aid contributions for dependants or family for which they are not the main member but make payment do need to submit all the supporting documents upfront if requested. We are seeing that taxpayers merely submit the medical aid certificate with no proof of payment and reasons why they are making payment for someone else’s medical aid. Accompanying the medical aid contribution certificate, when the taxpayer is not the main member, should be a letter stating the reason for this payment and how the person is related to or dependent on the taxpayer. Further to that, proof of payment in the form of a bank statement or letter from the bank / debit order instructions from the medical aid, or in the case where this amount is paid over to the main member themselves, documentary proof of this combined with proof that they then make payment to the medical aid, should be submitted Although this can be quite onerous, SARS will most likely disallow the expenditure if these documents are not provided, resulting in much valuable time wasted needing to dispute the additional assessment. This causes unnecessary delay and can leave taxpayers waiting several months for their refund to be paid out.
Taxpayers who earn foreign income should be aware that the taxable income on the front page of the assessment does not necessarily agree with the taxable income in the calculations on the later pages of the return. This leads to some confusion for both taxpayers and tax practitioners and is usually due to foreign income earned.
We are seeing cases where taxpayers are receiving generic letters on eFiling for submission of what looks like the same set of documents after having submitted these documents in the initial verification. In many instances − often related to medical claims or travel allowances − taxpayers themselves receive the letter of request from SARS for more specific documents via a direct email. What is required in these instances is to ask taxpayers to forward this correspondence to the practitioner, who must then send the required documents to SARS via the email noted in the request and submit this on eFiling as well in the required box. We have found that only submitting to one of these correspondence channels only delays the process and can often cause additional assessments to be issued inadvertently due to timing issues with document receipt. When a specific letter is sent to the taxpayer/practitioner, a request on eFiling will always open up and a generic letter sent. So, it is best to submit documents to both in order to be safe.
Despite the new timeframes issued in the Service Charter, we are still seeing taxpayers’ refunds being delayed or only being paid out right at the end of the time period. Taxpayers need to be made aware that the 21 working days are in fact working days and exclude weekends and public holidays. They are often under the impression that these are all days, including these ‘non-days’. This leads to taxpayers inundating practitioners with requests for updates and follow-ups before the period is up. Tax practitioners should make taxpayers aware that in the event of a verification and request for documents this 21 working day period only starts the day the letter of acknowledgment from SARS is received and that it can be up to 28 working days for any refund to be issued. Being upfront with taxpayers reduces a lot of stress for practitioners. Unfortunately, in a lot of cases, the days of one- or two-day refunds seem to not be the norm anymore, leading to taxpayers questioning why this has changed from previous years.
One final important thing to note is to be aware of what a verification is and what an audit is. On SARS eFiling, when a first request for documents is received, the letter attached will speak of verification and the box opened up will contain the word ‘review’. If a request for correction is then made and a revised return is submitted, the box will change to ‘audit’. However, if a further letter is received for the submission of documents, the word ‘verification’ is still used. Tax practitioners and taxpayers should note that they are still in the verification stage and therefore the 21 working day timeframe applies and not the 90 day audit timeframe. This is important when doing follow-ups and noting when to escalate problems with SARS, especially since not all taxpayers are issued with a completion letter once the verification has been finalised.
Included in the SARS verification requests is the process where a taxpayer has to visit a SARS branch to verify banking details although the banking details on the system are valid. From experience we can say that taxpayers and tax practitioners do not receive any notifications in this regard and only become aware of the verification requests when following up with SARS on turnaround times. In other instances, SARS sends an eFiling registration verification request, which actually pertains to banking details. Once the bank statement, certified copy of the taxpayer’s identity document and proof of address are uploaded on eFiling, the matter is verified.
We are hoping that a lot of these issues − and others − will be ironed out in the weeks to come and that the really busy time of October (formally November) will be smooth sailing for taxpayers and practitioners alike. The best advice is always to submit all supporting documents the first time around to avoid any future delays and requests and hopefully to avoid what in many instances is a simple filing process turning into a long, protracted affair.