The new disclosure will place a significant compliance burden on wealthy taxpayers, which has received formal endorsement from the National Treasury in last week’s speech –
“To assist with the detection of non‐compliance or fraud through the existence of unexplained wealth, it is proposed that all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns. The additional information will also help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee.” – Page 45, Chapter 4, Full Budget Review 2022
SARS Believes Wealthy Taxpayers Remain Under the Radar
The reason for the new disclosure is specifically given for the detection of non-compliance or fraud. There is yet to be reported success of conviction of a R50-million plus wealthy individual for tax fraud serving time in jail, but there appears a clear mandate to change this. The disclosure change is aimed at specifically unexplained wealth. This may allude to reported overseas trips, fancy cars, properties or flashy lifestyles advertised on social media, which does not correlate with what SARS sees on the tax return.
Individuals With Assets, Not Net Worth, Above R50-mil Seems Targeted
The announcement refers to a declaration only for taxpayers with assets above R50-million. They will have to declare ‘’specified” assets and liabilities. This implies that not all assets need to be disclosed and that SARS is only interested in certain types of assets, which has yet to be announced. The disclosure will also include liabilities, which means that SARS will start looking at assets above R50-million and not necessary net worth above R50-million. For example, if you have a farm of above R50-million and a bank mortgage of R30-million, your net worth on this asset is only R20-million. National Treasury’s announcement specifically calls for disclosure of assets above R50-million, so it suggests the above scenario will fall under this new rule.
Is This Announcement Contradictory?
This begs the question – Will the wealthy with assets over R50-million, who have been non-compliant and committing tax fraud, suddenly start making correct tax disclosures, because of this announcement? There would be an argument, that this announcement will just burden the wealthy compliant taxpayers and they will be further scrutinized. However, SARS has announced in the Budget 2022 that “The dedicated new unit focussed on high wealth individuals is taking shape”. This suggests that the tax disclosure is merely part of a wider strategy. For example, where an individual does not file a tax return required by law, or does not make full and correct disclosure therein, this opens them up to criminal charges.
Market Values May Create Significant Compliance Burden
Giving market values creates a serious compliance burden and risk for any taxpayer in this category. You do not want to get into valuation arguments with a SARS criminal investigator who will ask piercing questions on how you determined the current value of your assets. Does this mean you have to get property valued each year, or more complex, where you have a privately owned business, must your net worth be valued on an annual basis? It remains to be seen how SARS will find the correct balance between getting the information they require and not placing an undue burden on compliant taxpayers.
How will family structures be treated?
SARS’ approach is aimed at all provisional taxpayers with assets above R50-million. This suggests that it will impact privately owned companies and family trusts too, as they are also provisional taxpayers. One can clearly see how this can quickly become very complex and time consuming.
Prudent Measures to Act Upon Now
National Treasury’s announcement leaves little doubt that there is a renewed focus on wealthy taxpayers and their structures. The positive is that there is sufficient warning given that this will only be implemented in 2023. We have extensively assisted high net worth taxpayers to financially emigrate over the past couple of years, and this announcement may expedite the decision for those on the fence.
With time running out, High Worth Individuals are encouraged to perform a tax diagnostic on compliance and have a hard look at whether heritage structures remain valid or can be improved. Of course, where you have been in the naughty corner or even unknowingly non-compliant, please consider doing a SARS Voluntary Disclosure, as they have an excellent team dealing with correctly prepared applications.