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  • Writer's pictureDebbie Bullivant

Did you know that Good Record Keeping has serious TAX implications?


Good Record Keeping is our secret tool!

Do you think your business is too small for SARS to take notice? Are you under the impression that SARS prioritize larger businesses with higher revenues? If you think, “If I miss a receipt or invoice here or there, I can rectify it, or my Tax Accountant or Bookkeeper can help me sort it out if asked.”.

Please get in touch with Bullivant Accounting & Tax Services before your next tax submission (which is not far away). In our practice, we have seen that SARS has no threshold and investigates and penalizes the smallest business to the largest corporates.

SARS does take action!


SARS also determines your tax behaviour and applies this behaviour to the UNDERSTATEMENT PENALTY table, which ranges from 0% to 200%.

With all the technology at our fingertips, good record keeping is still a problem for the busy business owner, professional, consultant, executive, salesperson and anyone who has to submit taxes!


Back in the day, people used to toss all their receipts, vouchers and slips into a box, and when it was time to do VAT or taxes, out would come the box and the sorting, pain and agony would start. With the advent of technology, we have apps that can scan receipts, email invoices, save to a central location, and invoices can be automated (all of these aimed to make record keeping easier) – but ultimately, this can be just another version of the box of receipts!


A recent court case demonstrated the consequences of poor record keeping can be severe, with potential accusations of gross negligence, highlighting the importance of taking reasonable care and having reasonable grounds for tax positions.

Good record keeping is not just about copies of receipts and invoices – it is about the whole chain of events/purchases/businesses.

Some examples of good record keeping include (remember this is not an exhaustive list – this is a summary to make a point):

Every business transaction has an invoice or voucher, and the invoices (bill vouchers) must include the following:

a. The invoice number

b. Date

c. Customer Name

d. Address

e. Description of the goods/services

f. The amount

g. if applicable, VAT number

h. The suppliers’ details.


Transactions recorded must have a purpose (and relate to your business) – you need to be able to substantiate the claim.

This is because SARS may require you to justify, explain, or provide information. If you don’t have this information readily available, this will have an impact – this could mean you have to pay more tax than you originally thought, an understatement penalty and a late payment penalty on the underpaid tax - don’t forget the interest on all of this. Ouch!


We are qualified at Bullivant Tax and Accountants to help you and your business put the necessary record-keeping in place.


One of the secret tools that Bullivant Accounting & Tax Services uses to change your financial mess to financial magic is GOOD RECORD KEEPING:

1. We help you capture and substantiate all your transactions,

2. Recommend transactions to be included/excluded from your income tax & VAT claim,

3. Help you provide clear and transparent income tax and VAT claims, and

4. Most importantly, we help you give the right information to SARS.


The temptation to ignore the SARS request for further information must be resisted – SARS requests do not go away (even if you ghost them).

Technically anyone can do their taxes but remember that TAX is specialized. Whilst SARS has made it easier to submit, there are a lot of rules, technical applications and information you need to know when submitting. At Bullivant Accounting & Tax Services, we know TAX and will work with you to ensure you don’t pay more than you must.

We keep you and your business compliant, up-to-date and get you from a financial mess to financial magic!


So what was the court case – see the extract below

If you want the full transcript, click here to download it.


SIYANDISA TRADING (PTY) LTD
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When your financials reflect an assessed loss – yet you have money in the bank, are you sure you don’t have a tax liability?


The taxpayer thought SARS was wrong.


This case has cost the taxpayer tax he didn’t know about, an understatement penalty of 100% on the understated tax and a 10% penalty on underpaid tax together with interest (spanning over a decade). It doesn’t stop there. The taxpayer had to pay for his legal team, and the court instructed him to pay SARS legal team and costs. That is a big OUCH!


Siyandisa Trading (Pty) Ltd v CSARS

(A201/2021) ZAGPPHC 126 (17 February 2023)

Appeal against SARS’

· disallowance of a depreciation claim,

· disallowance of a deduction of finance charges and the

· imposition of an understatement penalty.

Background

ST conducted the business of the supply of aircraft services, which includes the repair and overhaul, airframe maintenance, and rental of aircraft and components.

Rendered these services through its sole director Mr O, and six full-time employees.

Mr O became the director of ST in 2007 when the company was dormant, and it remained dormant until 2010.

Mr O is also the founder of the T Trust, created for the benefit of his family, and a director of X (Pty) Ltd.

On 12 April 2010, T Trust held all the shares in ST and X.

13 April 2010: X sold assets to ST in an asset-for-share transaction.


Disallowance of a depreciation claim:

SARS conducted an enquiry in terms of section 50 of the TAA (Tax Administration Act) and concluded that the values of the assets were inflated.


[12] … ‘Because the transaction was concluded between two connected entities, the question arose whether this was an arm's length transaction. As a result, the respondent rejected the deduction and

disallowed the depreciation claim.’

Note [27] … ‘Where the purchaser, particularly where a transaction was concluded between related parties, however, wants to utilise the tax benefits provided for in s 11(e) of the ITA (Income Tax Act), the purchaser must ensure that its house is in order in that it is able to prove that the items were purchased at market value.

[29] … it is prescribed in the BGR (Binding General Rule) (7) that taxpayers must ensure that they have the necessary information or documentation readily available when requested by SARS to substantiate the arm's length price of an asset and the inclusion of any amount in the determination of the value of an asset.

[31] … the appellant failed to prove on a balance of probabilities that the market value of the tools and equipment acquired by the appellant from X equalled or surpassed R11 666 667.

[32] The appeal against the respondent's dismissal of the depreciation claim thus stands to be dismissed.


Disallowance of Finance Charges:

ST claimed a deduction of finance charges in the amount of R253 716 in its 2011 year of assessment.

The finance charges relate to interest paid to ABSA in terms of a loan agreement that X concluded with ABSA in 2008 to finance the purchase of an aircraft for which ST assumed liability in terms of the sale of business agreement.


SARS disallowed the deduction as the ABSA loan agreement was not signed by ABSA, and no proof of payment to either X or ABSA was provided by ST … amounts reflected in the financial statements were not reflected in the general ledger account. ‘The amount was thus disallowed because it could not be traced to its source’.

[37] … the taxpayer failed to prove the extent of finance charges incurred.

[38] In circumstances where the loan agreement provided by the appellant was not signed by both the parties to the agreement, and the loan account and alleged settlement letter contained different account numbers, the Tax Court's view that the appellant did not discharge the burden of proof that it was entitled to a deduction … cannot be faulted and the appeal on this issue stands to be dismissed.


Understatement penalty:

The appellant's tax returns for the 2011 and 2012 assessment years reflected an assessed loss.

As a result of the disallowance of the deductions, the assessed loss was reduced, and the difference for the two years of assessment was, respectively, R2 772 330 and R3 005 175.


This difference was the result of understatement by the applicant in its 2011 and 2012 tax returns … the understatement was due to the appellant's 'gross negligence, standard case', and SARS imposed a 100% penalty in terms of the understatement penalty percentage table in s 223 of the TAA.

The Tax Court had confirmed this penalty.

[46] It is evident that by failing to provide SARS with the necessary documentary proof to substantiate its depreciation - and deduction of finance charge claims, the appellant's conduct fell short of the standard of a reasonable man, and it was negligent.


The next question is whether this conduct can be classified as grossly negligent and involves conscious risk-taking or a total failure to take care.


[47] Gross negligence was defined in MV Stella Tingas: Transnet Limited t/a Portnet v Owners

of the MV Stella Tingas and Another [2003, SCA] … departure from the standard of the reasonable person to such an extent that it may be categorized as extreme; It must demonstrate where there is found to be a conscious risk-taking, a complete obtuseness of mind, or, where there is no conscious risk-taking, a total failure to take care.


If something less were required, the distinction between ordinary and gross negligence would lose its validity.


[51] … it cannot be said that SARS misdirected itself in holding that the appellant was grossly negligent in persisting in its position. The Tax Court was correct not to interfere with the understatement penalty.


Conclusion: The appeal was dismissed with costs, and SARS won this case.

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