Money and Markets

Some rich South Africans can expect a letter from SARS – here's who should be nervous

Business Insider SA
  • SARS is launching a full-scale crackdown on wealthy South Africans - or those with "complex financial arrangements" – who haven't declared all their income.   
  • Some have already received detailed lifestyle questionnaires.
  • In December, SARS also alerted many people with overseas holdings that these assets are under review.
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South Africans who bought pricey cars or property in recent years – with declared income on their tax returns that don’t match this lifestyle – may expect to hear from the SA Revenue Service in the very near future.

In his budget speech this week, finance minister Tito Mboweni warned of a coming crackdown on “individuals with wealth and complex financial arrangements”.

“This first group of taxpayers have been identified and will receive communication during April 2021,” he told Parliament.

Some wealthier taxpayers have already, recently, received letters about a “review” of their international holdings. Some are being required to complete detailed lifestyle questionnaires.

On Wednesday, Mboweni announced that SARS will establish a dedicated unit to improve compliance of wealthy taxpayers, and asked for a R3 billion allocation to expand its specialised audit and investigative skills.

SARS will now have more resources to do lifestyle audits, and to use alternative sources of information to look into discrepancies between spending and declared tax income, says Chris Potgieter, managing director of Old Mutual Wealth Trust Company.

This may include using the national administration traffic information system (NaTIS) to identify the owners of new expensive cars, as well as property registries to find out who has been buying pricey homes.

The Davis Tax Committee recommended using this kind of information to notify SARS of big spenders who may be under-reporting their real income.

How much do you spend on meat?

Some wealthy taxpayers may already be on edge, after dozens of them received detailed lifestyle questionnaires earlier this year. According to one tax advisor, the document even included questions on how much the taxpayer spent on specific groceries, like meat and vegetables.

“High-net worth individuals are definitely currently being targeted as part of a big information-gathering exercise,” says Werksmans director Doelie Lessing.

Mboweni highlighted that taxpayers with "complex financial arrangements" will specifically be targeted by SARS, and Lessing expects that this will include structures with discretionary trusts.

SARS is also clamping down on overseas holdings – and in December, alerted some high-net worth taxpayers that their investments in foreign assets are being reviewed, going as far back as 2014.

These investigations were based on new information that came from overseas financial institutions and other parties as part of the Common Reporting Standards (CRS), says Lessing. The CRS compels these institutions and tax authorities in 87 jurisdictions to share information across borders.

Recipients of the letters were urged to make voluntary disclosures if they have not declared all their foreign income and interest. 

ENS tax executive Charles de Wet expects that information on dividends and interest from foreign investments may come under particular scrutiny.

He advised taxpayers whose foreign investments are currently being reviewed to get an independent view of their disclosures over recent years, to confirm that everything has been declared.

The potential penalties are enormous. If found guilty of gross negligence, a taxpayer could face penalties more than double the owed amount, plus interest. And if found guilty of tax evasion, the penalties could be more than triple than the original amount.

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