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TAX OMBUD – RECOURSE FOR AGGRIEVED TAXPAYERS

TAX OMBUD – RECOURSE FOR AGGRIEVED TAXPAYERS

A2_AThe Tax Administration Act that came into effect on 1 October 2012 is a valiant attempt to balance the rights of the tax man with those of the taxpayer. One of the ways of bolstering the taxpayer’s position on this not very level playing field is the creation of the office of the ombudsman or tax ombud. Exactly one year after the inception of the Act, Gauteng Judge President Ngoepe was appointed as the first encumbent of this office.

What is the role of the ombud?

The mandate of the ombud is set out in section 16(1) of the Act:

…to review and address any complaint by a taxpayer regarding a service matter or a procedural or administrative matter arising from the application of a tax Act.

The aim is to provide taxpayers with a low-cost mechanism to address administrative difficulties that cannot be resolved by SARS. However, the ombud’s powers are limited. They may not review legislation or policy unless it relates to a service, procedural or administrative matter. Although the Act is not clear on the issue, the decision as to whether a matter falls within the scope of his mandate probably lies with the ombud themselves.

If you have a complaint

A complainant is required to first exhaust the available complaints resolution mechanisms within SARS before approaching the office of the ombud, unless there are compelling circumstances for not doing so. This will for instance be the case where exhausting internal mechanisms will cause undue hardship to the taxpayer, or is not likely to produce a result within a reasonable period of time.

Complaints are to be made in writing on the prescribed form to the office of the ombud. A copy of the complaint form can be requested from the tax ombud’s office by telephone, fax or e-mail. The form must be completed and signed by the taxpayer. If a tax practitioner or other person completes and signs the form on behalf of the taxpayer it is advisable for the client to complete a power of attorney specifically for this purpose. All supporting documents must be attached to the form. A request for review of the complaint should include any correspondence received or sent relating to the complaint, call reference numbers, and the relevant contact details of the SARS officials with whom the taxpayer dealt. It is recommended that the complainant specifically indicates which internal actions were pursued and what SARS’ response was.

If a taxpayer is unsure as to whether or not his complaint falls within the ombud’s mandate, or if a taxpayer is unable to write his/her complaint, they may call the ombud’s office where trained professional staff will attend to the call and advise what should be done.

What can the ombud do?

The ombud may review and address a complaint in a number of ways, including by way of mediation or conciliation. He/she may also facilitate a taxpayer’s access to complaint resolution mechanisms within SARS. Ultimately they must follow informal, fair and cost-effective procedures in resolving a complaint. The ombud’s recommendations regarding the resolution of a matter are not binding on SARS. In the interests of legitimacy and transparency it is however likely that SARS will follow the recommendations.

Reports by the ombud to the Minister of Finance must be submitted on an annual basis. In addition, they must also report to the Commissioner of SARS at quarterly intervals. This report must contain recommendations for any administrative action that may be appropriate to resolve the problems encountered by taxpayers.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

FRINGE BENEFITS AND INCOME TAX: CAN EMPLOYEES STILL BENEFIT FINANCIALLY FROM FRINGE BENEFITS?

FRINGE BENEFITS AND INCOME TAX: CAN EMPLOYEES STILL BENEFIT FINANCIALLY FROM FRINGE BENEFITS?

A1_MarIn the past there were definite financial gains attached to certain fringe benefits granted by an employer to employees. There were also quite a few loopholes which were abused by a number of taxpayers. As a result SARS has clamped down on the tax treatment of fringe benefits by changing the Tax Laws and closing the loopholes.SARS started taxing the cash value of fringe benefits. The cash value of a fringe benefit is equal to the cost of the benefit to the employer. If the asset depreciates over time, the cash value will have to be re-considered each year, otherwise the employee will be paying too much tax.

The following fringe benefits granted by an employer to an employee will be taxable in the employee’s hands at the cash value as set out below:

  • Private use of a cellphone or computer equipment, except if the private use of the asset is incidental to the business use thereof and the employee uses the asset more than 50% for the employer’s business.

The onus to prove that the asset is required to be used outside of the workplace by the employee and mainly for business purposes, rests on the employer and the employee.

  • Company car:

The cash value of the company car fringe benefit will be calculated with reference to the original cost of the vehicle to the employer.

There are special tax considerations to be taken into account in the following circumstances:

  1. A vehicle not acquired by the employer in a sales or exchange transaction;
  2. Maintenance plans;
  • Employee contributes towards the cost of the vehicle;
  1. Employee used the vehicle for a period shorter than a month; or
  2. Employee is regularly required to use the motor vehicle for the performance of his/her duties outside their normal working hours.
  • Giving an asset to an employee for free or for less than its actual value:

The cash value of the fringe benefit will be the value of the asset less any consideration paid by the employee.

  • Low interest or interest-free loans:

The fringe benefit will have a cash value of interest calculated at the SARS official tax rate and be reduced by any interest paid by the employee.

  • Subsidies in respect of loans:

The cash value will be equal to the cost of the subsidy to the employer in respect of any interest and/or capital repayments.

  • Employer subsidies to pension funds, provident funds, etc.:

The cash value will be the amount of the subsidy paid by the employer.

  • Employer contributions to insurance policies where the employee or a relative of the employee will be benefitted by the policy:

The cash value will be equal to the amount of the premiums paid by the employer.

  • Medical aid contributions paid on behalf of an employee:

The cash value is equal to the amount paid by the employer.

  • Payment or refund of medical expenses incurred by the employee or his immediate family:

The cash value is equal to the cost to the employer.

  • Debt paid on behalf of an employee or releasing an employee from an obligation to pay a debt:

The cash value is equal to the amount paid by the employer or the amount of the debt of which the employee has been released.

There are a number of exceptions where no value will be placed on the payment or the release of the debt. Please contact your tax practitioner for more information.

  • Free or cheap services:

The cash value will be calculated as the cost of the service to the employer less any amount paid by the employee.

  • Free meals, refreshments or meal vouchers:

The cash value of this benefit will be equal to the cost to the employer less any amount paid by the employee.

It is important to ensure that an employee is taxed on the correct amount for a fringe benefit. Taxing an employee on an amount higher than the cash value of a fringe benefit will result in the employee paying too much tax. Taxing the employee on an amount lower than the cash value, thus deducting too little Employees’ Tax will cause the employer to become liable for fines and penalties from SARS.

As can be seen from the above, an employee will be taxed on his/her cost to the employer and it is fast becoming irrelevant whether an employee’s package is structured in a certain way to reduce income tax.

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your attorney for specific and detailed advice. (E&OE)

Reference List:

SARS PRESCRIPTION

SARS PRESCRIPTION

A2_BImagine the following scenario: a taxpayer named Andrew is on his annual vacation for four weeks. On the fifth day of his vacation, he is lying carefree in the sun with his toes wiggled into the warm beach sand. A thought crosses his mind: perhaps he must check his email for a change.

Fast forward eight hours: Andrew logs in to his email. He gives the emails in his inbox a quick scan. Suddenly his stomach cramps. His heart beats faster. His hands start to sweat. His eye caught an email from SARS. Andrew opens the email and then the attachment reluctantly. The attachment contains a letter from SARS stating that they are going to re-assess his income tax for a specific tax year. The assessment for that particular tax year has been issued more than four years ago. Can SARS do this?

To be subjected to the prescription (or re-opening) of an assessment that has been finalised a few years ago already, is something taxpayers don’t even want to contemplate. However, in terms of the new Tax Administration Act, 28 of 2011 (TAA) SARS may go back more than three tax years into the past, prescribe and re-assess a tax return but only if the Commissioner is objectively, based on the facts, satisfied that both the following statutory requirements are met:

1.  There was fraud, misrepresentation or non-disclosure of material facts.

“Fraud” is defined as an unlawful act committed with the intention of misleading another person. The misleading information must cause the other person to act differently than they would have acted if they were not given the misleading information.

The legal meaning of “misrepresentation” refers to a false statement made by a person, regardless of whether the statement is made negilently, fraudulently or innocently. Misrepresentation does not include the expression of an opinion or an interpretation of law.The taxpayer must have made a positive statement which contained one or more facts that were untrue.

Note that innocence cannot be pleaded as an excuse for misrepresentation. Taxpayers thus have to make sure about the content of any statement they make regarding their tax affairs before making such a statement.

“Non-disclosure” means failure to reveal a fact if there is a duty to disclose it. Whether or not there is an intention to conceal it is irrelevant.

2.  The above fraud, misrepresentation or non-disclosure of the material facts was the direct cause that the taxpayer had been assessed for a lower amount of tax than if the taxpayer had disclosed these material facts referred to in section (i) above, to SARS.

There must be evidence of a direct link between the non-disclosure or misrepresentation of the material facts and the taxpayer paying too little tax. If the fraud, non-disclosure or misrepresentaiton of the material facts did not cause the taxpayer to be liable for less tax than he was assessed for without the material facts, the second requirement listed above is not met and SARS shouldn’t be able to apply this section of the TAA.

Generally the onus of proving that income is not taxable or that an expense is tax-deductable rests with the taxpayer. However, if SARS wants to apply the provisions of this section of the TAA, the onus of proving that the above requirements are met, rests with the Commissioner.

It seems that if the fraud, non-disclosure or misrepresentation of material facts did take place but did not cause the taxpayer to pay less tax than if SARS had been in possession of these material facts, and SARS would have assessed the taxpayer in exactly the same way as with the original assessment, despite SARS becoming aware of the material facts now, SARS cannot claim that the under-assessment was due to that fraud, non-disclosure or misrepresentation of the material facts.

If SARS wants to issue an additional assessment on the basis of requirement (i) above but requirement (ii) is not met, the taxpayer can deal with this situation using the objection and appeal provisions available.

In the light of SARS’s tools to go back and prescribe assessments for old tax years, it might be prudent to keep tax records for longer than the required retention periods prescribed by SARS.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Reference List:

l TAA: Section 99

l http://financial-dictionary.thefreedictionary.com

l http://www.justanswer.com/south-africa-law

 

 

THE VALIDITY OF TAX INVOICES – IT IS YOUR RESPONSIBILITY

THE VALIDITY OF TAX INVOICES – IT IS YOUR RESPONSIBILITY

A1_BThe audits of Value-Added Tax (VAT) returns by the South African Revenue Service (SARS), have increased the focus on the validity of tax invoices for the purposes of VAT.

A VAT vendor submitting VAT returns is responsible for ensuring that all invoices included in the returns comply with the relevant legislation. If valid tax invoices cannot be provided at the time of a VAT audit, the vendor may lose up to 100% of the input tax being claimed on the invoice, even if an amended valid invoice can be provided subsequent to the audit. Furthermore, serious penalties, interest and other consequences may be imposed on the VAT vendor for errors, intentional omissions and fraud.

Section 20 of the Value-Added Tax Act, No 89 of 1991, together with the VAT404 Guide for Vendors as updated in March 2012, sets out the requirements for a valid tax invoice.

A VAT vendor must issue a tax invoice within 21 days of the supply having been made where the consideration for the supply exceeds R50, whether the purchaser has requested this or not. If the consideration for the supply is R50 or less, a tax invoice is not required. However, a document such as a till slip or sales docket indicating the VAT charged by the supplier, will be required to verify the input tax.

The requirements for tax invoices of which the consideration or taxable supply is more than R5 000 are:

  • the words “tax invoice” should be displayed
  • name, physical address and VAT registration number of the supplier name, physical address and VAT registration number of the recipient
  • original serial number of the tax invoice
  • the date of issue of the tax invoice
  • full and proper description of the goods sold and / or services rendered
  • quantity or volume of goods and / or services supplied
  • total amount of the invoice and VAT amount in South African currency (except for certain zero-rated supplies)

The requirements for tax invoices of less than R5 000 are:

  • the words “tax invoice” should be displayed
  • name, physical address and VAT registration number of the supplier
  • original serial number of the tax invoice
  • the date of issue of the tax invoice
  • full and proper description of the goods sold and / or services rendered
  • total amount of the invoice and VAT amount in South African currency (except for certain zero-rated supplies)

In the case of second-hand goods purchased from a non-vendor, the purchaser has to record the following information:

  • name, address and identity number of the supplier, confirmed by the person’s identity document or passport. (If the value of the supply is equal to or greater than R1 000, a copy of this document must be retained by the purchaser. If the non-vendor is a juristic person, a letterhead or similar document stating the name and registration number of the juristic person is required)
  • date of acquisition
  • quantity or volume of goods
  • description of the goods
  • total consideration paid for the supply
  • declaration by the supplier stating that the supply is not a taxable supply

If a vendor fails to deduct an input tax in respect of a particular tax period,that input tax may be deducted in a later tax period, but limited to a period of five years from the date that the particular supply was made. However, when a vendor becomes aware of an output tax not declared in the relevant period, a corrected VAT return for that specific period should be submitted. It is not acceptable to declare the output tax in the next period and SARS may impose penalties and interest on the output VAT omitted.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)