Most taxpayers know that sinking feeling when SARS requests supporting documents from them. Which supporting documents must I submit? Am I being audited? Did I make a mistake on my income tax return? Will SARS send me to jail?
Why did SARS choose me?
SARS remains secretive about the way they go about selecting tax returns for verification and auditing. Nobody is exactly sure how SARS determines from which taxpayers they will request supporting documents. SARS has only disclosed that they make use of automated systems which randomly selects tax returns for review and/or determines a risk score for taxpayers based on their tax compliance history and third party data that may be in SARS’s possession.
Am I being audited?
A request for supporting documents does not necessarily mean a taxpayer did something wrong and is being audited by SARS. When SARS requests supporting documentation, they usually do a verification of the taxpayer’s income tax return to confirm that the submitted return agrees with the supporting documents. After the verification process is complete, SARS may decide to do a tax audit. The verification process and an audit are two different processes.
Being selected for an audit does not mean that the taxpayer broke any tax laws. SARS will select taxpayers who have not contravened any tax laws but whose behaviour indicates that the taxpayer might perhaps have transgressed one or more tax laws.
Which tax deductions may trigger requests for supporting documents by SARS?
SARS tends to request supporting documents in certain areas where claimable tax deductions can easily be inflated.
- Repairs and maintenance claimed against rental income
Where a taxpayer claims repairs and maintenance expenses against rental income, SARS may request supporting documents. SARS can go as far as doing site inspections at the rental property to confirm that the repair and maintenance work has indeed been done on the rental property and not on the house of the owner of the rental property.
- Claim for home office expenses
SARS wants proof of expense items claimed, for example municipal accounts, cleaning expenses and insurance. To be able to deduct home office expenses, the home office and office equipment must be used exclusively for business purposes. SARS has been known to do site inspections to confirm the exclusive use of a home office for business activities.
- Deductions against fringe benefits like travel allowances and company cars
In order for SARS to allow the travel deduction, the taxpayer must submit a travel logbook showing kilometres travelled for business purposes.
- Claim for medical expenses
SARS is looking for proof of payment of qualifying medical expenses paid out of the taxpayer’s own pocket during the year of assessment under scrutiny. A medical invoice must be submitted together with some kind of proof of payment in order for SARS to allow the deduction.
What happens if I do not submit supporting documents when SARS requests them?
If a taxpayer cannot submit the relevant documents, SARS will not be able to verify claims on the taxpayer’s tax return and the deductions will not be allowed.
When might SARS decide to audit me?
Some of the reasons why SARS might decide to audit a taxpayer’s tax affairs are:
- The taxpayer’s behaviour in the past regarding his/her tax affairs.
- The complexity of a taxpayer’s tax affairs.
- SARS found material inconsistencies or irregularities while verifying a tax return against supporting documents.
An audit is a more in-depth process than verification and involves an evaluation (as opposed to verification as in the case of a request for supporting documents) of the information that was submitted in a tax return.
Providing SARS with supporting documents when requested to do so places an additional administrative burden on the taxpayer. However, requests by SARS for supporting documents also protect the honest taxpayer by ensuring that more taxpayers pay their dues.
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 financial adviser for specific and detailed advice.