Missed deadlines, incomplete answers and unexplained bank credits can lead to an estimated assessment and a costly dispute
Lambert Roberts
Expatriate Tax Team Manager at Tax Consulting SA.
A SARS request for additional information is no longer something to treat as a formality. A deposit that is not adequately explained, including money transferred between your own bank accounts, can trigger further questions, delay finalisation of your return and, if you fail to respond by the stated deadline or leave questions unanswered, put you at risk of an estimated or additional assessment. SARS may assess you using the information available to it, which can leave you facing a tax bill that does not reflect what the money actually was.
A recent anonymised request shows how far this can go. SARS queried a difference between income declared on a tax return and credits reflected in bank records. It required a deposit-by-deposit reconciliation, explanations and evidence for significant receipts, investment certificates and six months of stamped bank statements. If the requested information is missing, incomplete or does not support the explanation, the matter can escalate instead of being finalised on the return as filed.
Excerpt from an anonymised SARS request.
A bank credit can become a tax problem when you cannot prove what it represents
Money paid into an account may be a loan, a transfer between your own accounts, money received from a spouse, an inheritance or proceeds from selling a personal item. A bank credit is not automatically taxable income. But if you cannot document its source and nature when SARS asks, you may have to spend time and money proving that it was not income.
Transfers between accounts can be particularly easy to misread. If money leaves one account and appears in another, SARS may see a credit in the receiving account without an obvious link to the outgoing payment. Keep statements for both accounts and match each transfer by date, amount and reference. If the trail is incomplete, the same money may appear to be an unexplained deposit, and you may be asked to account for it as part of your verification.
A loan should be supported by evidence of the lender, terms and repayment obligation. Payments from a spouse should be explained with records showing who paid, why, and where the funds originated. Proceeds from selling personal belongings may also need explanation: relevant facts include what was sold, whether it was a personal asset, and whether the sale was occasional or part of regular profit-seeking activity. A short note such as “personal sale” may not satisfy a request for supporting material.
SARS can require relevant material
Section 46 of the Tax Administration Act 28 of 2011 allows SARS to require relevant material for the administration of a tax Act. That material can include information and documents needed to check a return.
Under section 95(1)(c), SARS may issue an estimated assessment where a taxpayer fails to respond to more than one request for relevant material. An estimate is based on the information available to SARS; it may not reflect the taxpayer’s actual position if deposits have not been properly explained. Section 95(6) provides a route to ask SARS to revise an estimate by submitting a true and full return or the relevant material within 40 business days of the assessment, subject to applicable rules.
An estimated assessment does not mean that every deposit has been conclusively found to be taxable. It is, however, a serious position to correct. The taxpayer may need to assemble records, prepare a proper reconciliation and engage with SARS before the matter can move forward.
Risk profiling and third-party information
SARS has publicly stated that it uses AI-driven risk-profiling models powered by Big Data to identify verification risks. SARS also says it can obtain information from third parties during an audit. This does not reveal what triggered any individual verification or where SARS obtained a particular bank-credit figure. It does show why taxpayers expect data-led checks and ensure that their returns can be reconciled to available records.
Your bank account is not beyond SARS’s reach. Banks are required to submit specified financial information to SARS, which SARS uses to pre-populate returns and identify discrepancies. If a tax debt remains unpaid after a final demand, SARS may appoint the taxpayer’s bank to pay money it holds toward that debt. This does not mean SARS can automatically seize funds because it has opened a verification.
A verification can lead to further scrutiny. SARS distinguishes verification from audit and says it may refer a case for audit where it identifies financial risk in the taxpayer’s position. An audit can involve a wider review of financial records and supporting documents and take considerably longer than a verification.
Penalties depend on the facts and conduct
If SARS finds an understatement that results in a tax shortfall, an understatement penalty may apply. The percentage depends on the behaviour SARS attributes to the taxpayer and the circumstances of the case.
Under the Section 223 table, the highest rate is 200% for intentional tax evasion where the case is also obstructive or a repeat case. This is the most serious end of the scale; it is not an automatic consequence of receiving a verification letter or having an unexplained deposit.
Prepare the explanation before submitting documents
A useful response does more than attach a bundle of bank statements. It should answer every question SARS has asked, reconcile the credits to the return, identify receipts that are not income, explain investment-income differences, and link each explanation to supporting evidence. If one question is missed or an explanation is unsupported, SARS may regard the response as inadequate and continue its verification or issue an estimated assessment when the legal requirements are met.
For transfers between your own accounts, provide proof of the outgoing payment and matching incoming credit. Keep loan agreements, payment records and correspondence for spouse transfers, sale records for personal assets, and bank or investment tax certificates. If SARS requests a deposit schedule, make sure the totals agree to the bank credits and clearly identify amounts that are taxable, non-taxable or need further tax analysis.
The deadline in the SARS letter is critical. Failing to respond by that date, leaving questions unanswered, or submitting information that is incomplete or insufficient may result in SARS proceeding with an estimated assessment where the statutory requirements are met. If information is unavailable, explain what is outstanding and why before the deadline, and seek advice promptly. A weak or late response can turn a verification into a prolonged and expensive dispute.
We can assist with your SARS request
Our team can assist throughout the process. We can review the SARS request, prepare a transaction-by-transaction reconciliation, identify the supporting records needed, and draft and submit a clear response to SARS. If an estimated assessment has already been issued, we can help you provide the outstanding material, request a revised assessment and, where appropriate, pursue the available dispute process. The right next step will depend on the assessment and the evidence available.