Expat FAQs: What South Africans abroad should know about SARS auditing

If there’s a phrase that can send shivers down the spine of any and every person – it’s definitely ‘SARS tax auditing’. Aside from causing heart palpitations, what else happens when the South African Revenue Service decides to audit an individual? Let’s take a look at some important frequently asked questions about the SARS tax audit process, as well as some tips to help you through these stressful times.

What is a SARS tax audit?

A SARS tax audit is an investigation undertaken by the revenue authority (SARS) into an individual’s tax affairs. The purpose of an audit is to verify that the taxpayer has correctly declared all of their income and expenses, and ascertain that the correct amount of tax has in fact been paid.

SARS may select a taxpayer for an audit for a number of reasons, such as where the taxpayer has:

• Declared a large amount of income or expenses
• Claimed a number of deductions or rebate
• A history of non-compliance with tax laws
• Been reported to SARS by a third party

How does a SARS tax audit work? What does it involve?

During an audit, SARS will request access to your financial records, such as bank statements, invoices, and receipts. The auditor will also interview the taxpayer (that’s you!) and any other witnesses relevant to the investigation. If SARS finds any errors, irregularities, omissions in your tax return, you may be required to pay additional tax, interest, and penalties.

Here are some tips for taxpayers who are being audited by SARS:

• Be cooperative with the auditor
• Provide all requested documentation
• Keep a record of all communications with SARS
• If you disagree with the findings of the audit, object in writing to SARS
• If you are still not satisfied with the audit outcome, you can appeal to the Tax Board

How far back can SARS audit you?

SARS can audit you for any tax year that is not yet prescribed.

What is the prescription period for tax years?

• Non-self-assessment taxes (such as income tax): Three years from the date of assessment.
• Self-assessment taxes (such as VAT): Five years from the date of assessment.

However, SARS can still audit you for a tax year that is outside of the prescription period if there is evidence of fraud, misrepresentation, or non-disclosure of material facts. SARS also has the power to extend the prescription period for a tax year if it is necessary to do so in order to investigate a suspected tax evasion case.

Basically, it’s unlikely for SARS to forget about or not notice your tax non-compliance, even if you left South Africa a number of years ago without completing formal emigration or changing your tax status to non-resident. In light of the fact that the prescription period does not prevent SARS from issuing a penalty for late filing or non-filing of a tax return, it’s advisable for South Africans that have not yet clarified their Tax Compliance Status with SARS to get their tax affairs straightened out. This is even more important in the case of South Africans who have relocated abroad permanently.

Here are some proactive tips for taxpayers to avoid being audited by SARS:

• Comply with all tax laws and regulations by filing your tax returns accurately and on time. (Find out if you’re required to submit a South African tax return here)
• Keep accurate records of all of your financial transactions as well as an eye out for any communications from SARS eFiling requesting information, or you could be subjected to an unannounced visit from an auditor.

How long does a SARS tax audit take?

In general, SARS aims to complete a tax audit within 90 days. However, the length of a SARS audit can vary depending on a number of factors, including the complexity of the taxpayer’s affairs, the number of transactions involved, and the level of cooperation from the taxpayer. There may be cases where an audit takes longer, particularly when there are complex issues to be resolved.

What else do you need to know about SARS tax audits?

There are two different types of tax audits:

1. Verification: routine review of a taxpayer’s tax return to ensure that it is complete and accurate
2. Audit: a more in-depth investigation of a taxpayer’s tax affairs.

What are the red flags that signal you may be under tax audit by SARS?

• A letter from SARS requesting information or an unannounced visit from an auditor
• A change in your tax status, such as a change in your tax bracket or a change in the amount of tax you owe.

You have a number of rights during a SARS tax audit, including the right to:

• Be told why you’re being audited
• See the documentation that SARS is using to conduct the audit
• Request a copy of the auditor’s report
• Object to the findings of the audit
• Appeal the outcome of the audit to the Tax Board

What are the outcomes of a SARS tax audit?

If SARS finds any errors or omissions in your tax return, they may require you to pay additional tax, interest, and penalties. You may also be liable for criminal prosecution if you have committed tax evasion.

What triggers a SARS tax audit?

There are a number of factors that can trigger a SARS tax audit, including:

• Your tax return: SARS may select your tax return for an audit if it is unusually complex or if it shows a large discrepancy between your declared income and expenses.
• Your industry: SARS may also target certain industries for audits, such as the construction industry or the financial services industry.
• Your history of compliance: If you have a history of non-compliance with tax laws, you are more likely to be audited.
• A tip-off: SARS may also audit you if they receive a tip-off from a third party.

What does ‘finalised with changes’ and ‘finalised without changes’ mean?

Finalised with changes means that SARS has made changes to your tax return after it was originally submitted. The reasons this would happen are usually that:

• SARS found errors or omissions in your return
• SARS received new information that affected your return
• You agreed to changes to your return as part of an audit

If your return has been finalised with changes, you will receive a notification from SARS. This notification will explain the changes that have been made and the amount of tax that you owe, if any.

Finalised without changes means that SARS has accepted your tax return as it was originally submitted. This means that the amount of tax that you owe is the same as the amount that you calculated on your return.

If your return has been finalised without changes, you will not receive a notification from SARS. However, you can check the status of your return online by logging into your SARS eFiling account.

SARS original assessment vs additional assessment: what’s the difference?

• An original assessment is the first review that SARS makes on your tax return. It is based on the information that you have provided on your return.
• An additional assessment is a review that SARS makes after the original assessment. It is usually made if SARS finds errors or omissions in your return, or if they receive new information that affects your return

If you disagree with an additional assessment, you have 30 days from the date of the assessment to lodge an objection.

1. SARS will review your objection and make a decision:
   If they uphold your objection, they will amend the assessment.
   If they dismiss your objection, you will have to pay the additional tax, interest, and penalties.
2. You can also appeal a decision by SARS to the Tax Board, which is an independent body.

How long does SARS take to pay out after an audit?

SARS has 21 business days to issue a Letter of Completion once the audit process is finished. This letter will also include a revised or additional ITA34 showing if the refund or amount owing has changed or stayed the same. Once you receive the Letter of Completion, you can expect your refund within 7 business days.

However, there are a few things that can delay the payment of your refund, such as:

• If you have any outstanding tax debts, SARS will first deduct these from your refund
• If you have not submitted all of the required documentation, SARS may request additional information
• If SARS finds any errors in your return, they may need to make adjustments before issuing a refund

Here are some additional factors to keep in mind:

• SARS will only pay refunds into South African bank accounts
• If you have changed your bank account details since you filed your return, you will need to update them with SARS – here’s how to do it
• You can track the progress of your refund on the SARS website.

FinGlobal: expat tax compliance specialists

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