Online tax return application on screen. Business and finance concept.
“The secret to getting ahead is getting started.” (Mark Twain)
To avoid the last-minute rush, the risk of errors and omissions, and the cost of late submissions, penalties and audits, there is no better time to get ahead on your company and individual tax returns than the day the 2021 tax season opens.
What applies to your business – and to you?
The tax season for filing the 2020/2021 returns for both your individual tax and your company’s tax has now opened.
Have a look at the table below for details –
There were no changes to the corporate income tax (CIT) at 28%, or to the rate of tax on trusts at 45%. The Small Business Corporations (SBC) tax rate also remains unchanged, although the threshold is up to R83,100 from R79,000 last year (it increases for the 2021/2022 tax year to R87,300).
Personal tax rates still start at 18% for those earning up to R205,900 pa (up from R195,850 in the 2019/2020 tax year) and up to 45% on income exceeding R1,577,300 (up from R1,500,000 in the 2019/2020 tax year).
The changes to the tax thresholds and rebates for individuals are summarised in the table below –
Capital Gains tax and its specific exclusions also remain unchanged from last year, ranging from 18% for individuals and special trusts, 22.4% for companies and 36% for other trusts.
Given these tax rates, it is imperative to ensure you and your business is taking advantage of every tax deduction possible!
Take advantage of familiar and new deductions
The basic tax deductions for businesses and individuals are tax-deductible expenses, defined as any expense incurred in the carrying on of any trade, including employment income. However, there are many terms and conditions dictating when and how these deductions may be claimed, which makes it imperative to take professional tax advice.
For example, for the 2021 tax year with its numerous Covid-19 lockdowns, certain expenditure incurred while working from home can be included in the deductions. The expenses are calculated as a pro rata amount of home expenses such as rates and taxes, electricity, repairs and insurance. However, these expenses can’t be of a capital nature and no deduction can be claimed for any equipment provided by an employer without charge, or for anything that is reimbursed. Also bear in mind that claiming a tax deduction for home office use can impact on capital gains tax when you sell your home.
Red flags: what has changed since last tax season?
Building on last year’s first auto-assessments, SARS says that – starting in July – significantly more individual taxpayers will be auto-assessed this year. If you are selected to be auto-assessed, SARS will send you an SMS. Before you accept an auto-assessment, be sure to check with your accountant that all the relevant information and declarations have been correctly included, ranging from subsistence and travelling allowances and advances to fringe benefits; and that deductions for retirement fund contributions, medical and disability expenses and even donations have been correctly applied.
SARS has significantly improved its abilities to draw taxpayer information from third parties, including employers, financial institutions, medical schemes, retirement annuity fund administrators and other third-party data providers, making it easier than ever before for SARS to detect incorrect or undisclosed information.
SARS has notified certain taxpayers that they are under specific scrutiny, notably ‘wealthy’ taxpayers and those with ‘complicated’ tax structures, as well as taxpayers who hold offshore assets such as crypto currencies and those who receive rental income, including from Airbnb rentals. With regard to companies, SARS states: “CIT filing compliance is currently an issue for SARS and as SARS closes in on non-compliance by companies it urges companies to note that it is compulsory for registered companies that are required to file a return to do so on time and complete in all respects”.
The consequences of not submitting your tax return correctly by the SARS deadline are extensive.
SARS will levy a non-compliance penalty for each month that an individual’s return is outstanding. This can range from R250 up to R16,000 a month for each month that the non-compliance continues, up to a maximum of 35 months.
Failure to submit the return(s) for a company within the prescribed period will result in administrative penalties being imposed on a monthly basis per outstanding return and could result in a summons and/or criminal prosecution, which upon conviction is subject to a fine or to imprisonment for a period of up to two years.
While previously a mistake made by a taxpayer was only a crime when it was done “wilfully and without just cause”, things have changed. Now, there are two categories of offence. One requires wilfulness, but the other doesn’t. In that second category, even if non-compliance was due to negligence or ignorance, taxpayers can be convicted of an imprisonable criminal offence for, among others; failure to submit a return when required to do so, to retain all relevant substantiating records; to provide any information requested by SARS; or failure to disclose any material information to SARS.
What to do now
Don’t delay! The deadline dates are deceptively distant. However, the 23rd of November is less than 5 months away, and 31 January is just a few short weeks later. Immediately starting to prepare to lodge your tax returns will ensure that there is time to attend to any potential problems, such as finding documents, obtaining third party information or getting professional advice.
Ensure that all sources of income are included and that all rebates and amounts allowed to be deducted or set off are also factored in, including provisional payments already made and any claims for COVID-19 tax relief.
Keep accurate records of all the calculations and source documents used as SARS may ask for these documents to be verified and/or for the calculations to be justified.
Get professional assistance!
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.