The Income Tax Act No. 58 of 1962 (“ITA”) states that individuals are required to register as taxpayers for personal income tax when they earn income above the required threshold. Registered taxpayers are obliged to submit their tax returns to ensure overall compliance. The tax year for individual taxpayers fall on the last day of February (taxed on a progressive tax table). Submissions can be done through the e-filing system or at a SARS branch, though Covid-19 protocols has made the online process more favourable. In instances where tax returns are due for submission, SARS may levy a penalty for non-submission.
It’s advisable for taxpayers to contact tax practitioners for assistance in declaring the correct information when submitting tax returns. SARS e-filing allows all profiles linked to a common ID/passport number to appear under a single profile (i.e. personal and company information).
Does SARS require substantiating documents when filing annual returns?
According to section 29 of the Tax Administration Act, No. 28 of 2011, taxpayers are required to keep records for up to 5 tax periods because the onus of proof always rests upon them when information is requested by SARS.
Taxpayers are often puzzled by the documents required by SARS based on the information declared on their tax returns. During the COVID-19 pandemic, employers allowed employees to work from home, which resulted in queries about relevant deductions or allowances.
- Home office expenses:
- For home office expenses to be allowed as deductions, taxpayers should have a home office that is exclusively used for the purposes of a trade.
- Salaried employees will be allowed the deduction only when fifty percent of their duties are performed in the home office.
- The below information will be required by SARS:
- Square metreage of home office versus that of the whole house (house plan)
- Rental expenses
- Bond statements
- For employees receiving commission, the below deductions (with proof) will be allowed where a taxpayer’s remuneration consists of commission, and more than fifty percent of the duties are performed outside the office: phones, internet, office equipment, stationery, rates and taxes, and cleaning.
- Rental income and expenditure incurred in the production of rental income:
- Gross income, as defined under section 1 of the ITA, includes amounts received by or accrued to the taxpayer. The rental agreements should be provided as proof of the rental income earned. Expenditure incurred in the production of rental income should meet the General Deduction Formula according to section 11(a) of the ITA as well as the relevant tax case law.
- The following expenses and substantiating documents are allowed as a deduction:
- Agent’s tax invoices
- Electricity /municipal bills
- Bond statements
- Invoices for repairs, maintenance, royalties and license fees
- Proof of payments for salaries and wages
- Levy statements
- Any other documents in relation to the deductions claimed
- Foreign Employment Income
- Section 10(1)(o)(ii) of the ITA allows taxpayers an exemption according to the business days spent outside South Africa. For the 2022 tax period, SARS will revert to the qualifying period of 183 days outside South Africa for the 12-months period, of which 60 days must be continuous. However, individuals must prove this to SARS.
- The taxpayer should be in possession of the following:
- Days calendar schedule
- Passport copies
- Employment contract
- Pay slips for the respective tax period
When a taxpayer submits a tax return, SARS issues an Original Assessment. In instances where SARS is querying the information declared on the tax return submitted or when you have submitted a correction, an Additional Assessment will be issued. If you are aggrieved by either your Original or Additional Assessment, you are allowed 21 business to file an objection from the date of assessment.
To avoid the likelihood of assessments and to ensure a first-time accurate submission to SARS, it is best to rope in the services of a tax professional. They will be able to guide you towards SARS compliance and point out all the pitfalls before it is too late.