Speak to any individual taxpayer and tax practitioner these days and no doubt ‘auto assessments’ will feature in the conversation. Whilst many agree that the auto assessment process is a good idea and there is appreciation of SARS’ intention to simplify tax compliance, there are mixed feelings regarding the implementation and practicality thereof.
There has been criticism regarding the timing as well as criteria for determining who should and who shouldn’t receive an ‘auto assessment’. Many concerns have also been raised regarding the accuracy and completeness of the information populated in the auto assessment.
The format of the ‘auto assessment’ has also been questioned as many feel that the current format does not allow for adequate review of the information and have proposed that for the next filing season, the ‘auto assessment’ should appear in a detailed tax return format, which would be much easier to review.
Not an assessment
SARS have reiterated the fact that the auto assessment sent via SMS is not an assessment for the purposes of the Tax Administration Act, 2011 (the TAA), but is instead, a notice for individual taxpayers to access their eFiling profile, review the information and opt to ‘Accept’ or ‘Edit’ SARS’ proposed tax return.
Accepting SARS’ proposal will result in a tax return ‘prepared by SARS’ being submitted on behalf of taxpayers and an ITA34 assessment will be issued. If the taxpayer or tax practitioner chooses the ‘Edit’ option, a detailed tax return will be populated and this may then be edited as relevant and filed as normal. An ITA34 assessment will be issued based on this return.
How does SARS populate an ‘auto assessment’?
‘Auto assessments’ are populated using third party information submitted in respect of the relevant taxpayer, by his/her employer, medical aids, retirement funds and financial institutions.
The deadline for submission of this third party information was 31 May 2020. In his media briefing at the end of July 2020, the SARS Commissioner, Edward Kieswetter, noted with concern that many third parties had failed to make submissions and there were about 2 million amendments after initial submission.
Regarding the types of taxpayers who should be receiving ‘auto assessments’, SARS indicated that this pool of taxpayers should to a large extent exclude provisional taxpayers and those conducting a trade.
Experiences shared indicate that some provisional taxpayers have been subject to auto assessment and concerns have been raised regarding the fact that the ‘auto assessments’ do not take into account deductions, allowances and income outside of the third party submission process and affected taxpayers will obviously have to ‘Edit’.
It looks reasonable, should I ‘accept’?
The short answer is ‘No’ – especially if you receive income other than from third parties. You would also not want to miss out on claiming against a travel allowance or qualifying medical expenses incurred.
Many ordinary taxpayers with historically simple returns, may assume that all the information has been correctly populated and may be tempted to ‘accept’ without checking all the details. This could be the case especially in instances where the result as per the SMS indicates that there is nothing owing to SARS or a refund is due based on the ‘auto assessment’ and it ‘looks reasonable’ in relation to prior years.
For some taxpayers, there may be the perception that ‘SARS issued it, so it must be correct’. There may even be an element of fear in disagreeing with SARS’ proposal. In all honesty, there will probably also be a handful of taxpayers for whom accepting will be the easiest option, because they’re too busy to bother checking.
The truth is that, whilst according to SARS, the majority of the ‘auto assessments’ should be accurate, there has already been acknowledgement of certain errors in how certain information has been populated with some information duplicated and some information missing. Non-submission and amendments to submission by third parties will also affect information populated
Furthermore, as SARS have said, the ‘auto assessment’ is a proposal – the taxpayer still has the responsibility to check, before accepting. Omissions and mistakes, whether or not intentional, could result in dire consequences.
Penalties, interest, criminal charges…
Should SARS discover non-disclosure following verification or audit of a tax return, penalties and interest will be imposed if tax has been underpaid as a result of the non-disclosure.
Non-disclosure could arise where a taxpayer has forgotten to include income from transactions other than with reporting third parties – for example, a capital gain. Taxpayers would then have to motivate for waiver of penalties and interest, which is no easy feat and there is no guarantee of success!
If SARS can prove that the non-disclosure was with criminal intent, SARS have indicated that it will be swift in taking steps to criminally prosecute alleged offenders. Based on comments made by the Commissioner in the media briefing, on average, 12% of returns submitted were selected for audit and verification and some fraud had already been detected and was being addressed.
Fraud, misrepresentation or non-disclosure in a tax return also affects the period of limitation for issuance of an assessment. In simple terms, the assessment issued will not prescribe within the standard three-year period if SARS can prove that the full amount of tax chargeable was not assessed due to fraud, misrepresentation or non-disclosure.
Clearly, accepting an ‘auto assessment’ on the assumption that it is correct, does not absolve the taxpayer of the responsibility for the accuracy and completeness of the information contained in the related return. If you are uncertain and are dealing with a more complex tax return, seek advice from a suitably qualified, registered tax practitioner rather than risking the consequences of unintentional non-compliance.
Check (and in some cases, check again) before you accept!