JOHANNESBURG – If you do your own tax returns, make sure you know what you are doing, or you could be in for an expensive shock.
Recently the Tax Court in Pretoria had to consider an objection by a taxpayer (a company) against assessments issued by a South African Revenue Service’s (Sars’s) auditor.
Sars raised these assessments based on the tax returnssubmitted by the taxpayer and the way certain items appeared in the company’s financial statements, notes Somaya Khaki, project director: Tax Suite, South African Institute of Chartered Accountants (Saica) Standards.
At issue were the deductibility of a “fair value adjustment”, the accrual of management fees, the deduction of overseas travelling expenses, a capital gain and a possible donation.
In response to the evidence given by the witnesses the court felt that the major shareholder was an unreliable witness and his testimony put that of the only director of the company in doubt, adds Khaki. The only director (acting chief executive officer and public officer of the taxpayer) conceded that he was not suitably qualified to attend to the taxpayer’s financial and tax affairs, says Khaki. An example of this was the way the fair value adjustment was disclosed in the financial statements, reckons Khaki. “The taxpayer argued that it was deductible and it was presented incorrectly in the financial statements thereby giving Sars the incorrect view of that transaction”, she adds.
The taxpayer lost the case.
The court found that the taxpayer had underpaid tax on several fronts as a consequence it now has to pay that tax, and penalties and interest on the outstanding amount (For more on this listen to the accompanying podcast).
What this highlights says Khaki is that taxpayers and those in a financial position within a company must ensure that if they don’t understand the complexity of transactions, they need to get someone who does to make sure transactions are presented correctly in financial statements. Also if a query is raised by Sars as a result of an audit or an enquiry then the taxpayer or the public officer must ensure they get expert advice, in terms of responding to these queries. Failure to do so could cost the taxpayer more than using the skills of a qualified person.
Write to Monique Vanek: firstname.lastname@example.org