17 January 2020
Did you know that SARS have been conducting lifestyle audits since 2007. These audits are conducted when The South African Revenue Service suspects that you as a taxpayer have not been declaring all of your income and thus underpaying their tax due.
SARS have access to many sources of information and data can be accessed from:
- Your bank accounts
- The Deeds Office for property transactions
- Financial institutions for loans and motor vehicle finance
- Vehicle registrations
- Social media and other online resources where your lifestyle can be ascertained
- Can you believe even jealous neighbours or “friends” who tip off SARS that your lifestyle exceeds the purported income you earn. SARS actively encourages people to tip them off.
How do SARS select people for audits?
SARS does not disclose the criteria it uses to start probing taxpayer’s affairs or how it selects those who have to complete a lifestyle audit. If you are selected, you have to complete the audit in the time set out by SARS.
One individual selected demanded to know the reasons why he was picked, and refused to complete the 26 page “lifestyle questionnaire” sent to him by SARS. He had never registered as a taxpayer, nor had he ever submitted tax returns. The matter went to the High Court which rejected the individual’s right to demand “SARS confidential information” and ordered him to provide the information required by SARS, on pain of committal to prison for contempt of court until he submitted the lifestyle questionnaire.
What to expect if you are selected
You will need to provide details of day-to-day living expenses including rent or bond payments, groceries, entertainment, vehicle expenses, holidays – in fact every item of cost you and people related to you incur. These will be reconciled to bank statements.
In addition, SARS will probe all sources of your income.
In doing this process SARS can request information going back five years. If you don’t have the necessary documentation to justify income or expenditure, then SARS can levy taxes on these amounts. Keep good records.
It pays to be honest and as thorough as possible when completing this process. As noted above SARS have many sources of information to check the data provided by you.
The bad news
If a taxpayer has been under-declaring income or cannot justify expenses that have been claimed, then SARS will issue assessments for these amounts. Penalties of up to 200%, plus interest may be levied by SARS who can also report the taxpayer to the National Prosecuting Authority for potential criminal proceedings.
The only bit of good news is that SARS do not use search and seizure operations when conducting lifestyle audits – these are for criminal cases that SARS pursues.
Lifestyle audits are nerve racking and risky for taxpayers. Keep good records and consult your accountant before submitting information to SARS.
If you need any help or advice when it comes to SARS, business accounting and keeping good records then contact us.
Disclaimer: This article is edited from an email newsletter sent to us without mention of the source. We thought it would be good to share with our clients. If this is your article let us know and we will gladly credit the author.