Taxpayers sitting down to fill in their returns face new sections dealing with capital gains tax and residence-based tax. SARS says it has simplified the form for this past year, but the legislation behind it is a lot more complex.
Tread carefully as you fill in your return for this past tax year. Tax laws have changed and even if you have no intention of defrauding the taxman, it is very easy to do so inadvertently.
Individual tax returns are due in on Tuesday, June 4, unless you have not yet received your IRP5. In that case you have until August 19 to submit your return.
As you sit down to fill in the form, think carefully about your affairs. The unique combination of new residence-based taxation and capital gains tax (CGT) requirements could see you claim a deduction in one area and create a liability in another.
And if you have any grey money you have stashed offshore, be very careful before you sign off this year's form without declaring it.
Grey money is the term used to describe offshore funds that were either taken offshore illegally before the relaxation of exchange controls, or that were earned overseas before it was legal to leave such earnings there and have never been repatriated.
Residence-based taxation - the taxation of South African residents on income they earn from anywhere in the world - largely came into effect on January 1, 2001. Previously South African taxpayers paid tax on income earned in or from South Africa. This is the first full tax year in which this residence-based tax has been in force and the first year in which foreign capital gains have to be declared.
Earlier this year, Pravin Gordhan, the head of the South African Revenue Service (SARS), warned taxpayers that he would be hot on the heels of undeclared foreign investments.
Deborah Tickle, a tax partner at accountants and business advisers KPMG, says if you have grey money, now is the time to come clean. "It might hurt now, but it will hurt more later if you don't declare the assets this year."
Tickle says if you fill in your tax return honestly and completely, three years after SARS has assessed it, it is considered prescribed and cannot be re-investigated. However, if you tell fibs, or omit relevant information, and SARS finds out, it can re-investigate any part of your tax affairs again. In addition you could be charged penalties of up to three times the underpaid tax as well as interest.
As far as becoming entangled in residence-based tax and GGT requirements, Tickle says you are probably okay if you just earn a salary, pay PAYE (pay as you earn) tax and your main capital asset is your car. But the minute you do more than that, for example invest offshore using your R750 000 allowance (that is not through a local investment house) or become a non-resident for part of the year, you will run up against extremely complex legislation.
She says it is easily possible to inadvertently not declare all your taxable income, or to make yourself liable for more tax than you really owe.
For example, Tickle says, the tax return asks you to state whether you were a resident of South Africa in terms of the Income Tax Act. You are expected to know that a resident is someone who has been in the country for at least 91 days during the tax year under assessment and for the previous three years. In addition you must have been physically present in the country for 549 days over the past three years. Since October 1 2001, if you become non-resident you may find yourself liable for CGT on your worldwide assets. This is because you are deemed to have disposed of your worldwide assets and will therefore have realised a capital gain or loss.
Tickle also says that you should be aware of the consequences of what you declare about your primary residence. For example, you may state that you use 20 percent of your house as an office and claim a deduction against your income for 20 percent of the expenses you incur in the upkeep of your house. But if you sell the house and make a profit, you could incur CGT. Ordinarily the gain you make on the sale of your primary residence, up to R1 million, would be exempt from CGT. But if you claim that part of your house is not your residence, but rather your office, you will be liable for CGT on that portion of the gain you make on the house.
Similarly, Tickle says declaring donations could make you liable for CGT. This is because in making a donation, you are deemed to have disposed of an asset and realised its gain.
Many salaried taxpayers have this year been sent a shortened tax return, called the IT12S. Taxpayers are asked to declare any dividends received from foreign share investments and they are able to claim for any tax paid on those dividends in another country. Tickle says the IT12S form makes no provision for claiming tax paid on foreign dividends in another country.
Just to ensure SARS has covered all bases, this year's form contains a section in which you are asked to declare any income you received, but which you consider non-taxable. SARS officials say you are expected to declare things such as legal winnings or inheritances in this part of the form.
And if all this honesty isn't enough, in a compulsory question at the end of the return, SARS would also like you to state whether or not you made any money by breaking the law - by gambling illegally.