The fact that SARS is conducting lifestyle audits has been well-publicised. These audits, like many other “normal” audits, often result in SARS raising either an estimated assessment or an additional assessment. Based on what we have seen thus far, these assessments (whether additional or estimated), in our view, often overstate the actual tax liability for the relevant person.
Whilst there may be many reasons for this, part of the reason seems to be taxpayers’ lack of understanding of the process followed by SARS in making these assessments. Stated differently, taxpayers don’t seem to appreciate that SARS is trying to establish how he/she funded their assets. If taxpayers really knew and understood this, they would not, as we have seen, inadvertently overstate the value of assets or inadvertently omit a liability or fail to adequately explain why certain “sources” of funds are not taxable, or at least not taxable in the hands of the taxpayer under audit.
Another reason why these assessments seem to overstate the actual tax liability is the taxpayer’s failure to understand the principle of onus of proof. Too often we see answers to SARS’ questions lacking the requisite evidence to support them. It is not enough to say, for example, that “that deposit is actually a loan” or “that deposit is actually my company’s money” etc. Whilst statements such as these are often entirely true, absent the evidence to support them, it’s almost as good as a lie.
Or perhaps taxpayers do understand the principle of onus of proof but are not willing/able to take the necessary steps to discharge the onus (which, granted, can indeed be quite arduous in some cases), such as analysing bank statements, tracing deposits, reconciling accounts, producing the contracts, the AFS, the invoices etc.
Another reason for this is what we like to call the “fairness argument”. Some taxpayers don’t seem to appreciate, and understandably so, that the playing field, so to speak, of a lifestyle audits (or any tax audit for that matter) is not level between taxpayers and SARS. It is arguably much easier to raise an assessment (whether ultimately correct or not) following a lifestyle audit than it is for taxpayers to prevent the assessment or to successfully challenge the assessment, despite the perceived unfairness of it all.
Sometimes the tax liability is overstated because the assessments are just plainly wrong. A fairly recent investigation by the Office of the Tax Ombud found that a staggering 92% of assessments taken on appeal over the period investigated by the ombud, lacked merit.
The good news for taxpayers though is that, despite all of this, there are remedies at taxpayers’ disposal to fend off an incorrect assessment. With our founder having authored Lexis Nexis’s Public Guide To Handling Tax Disputes, Unicus Tax is exceptionally well placed to deal with such assessments and fend them off. In fact, at the time of drafting, Unicus Tax has a 100% success rate in resolving tax disputes through the objection and appeal process in favour of taxpayers, including disputes arising from lifestyle audits. The main reason for our success is arguably the fact that we truly understand what is required and how to present it in a way that makes it as plain as possible that the assessment is incorrect, whether the assessment is incorrect for factual reasons or for reasons based on law.
If you find yourself at the receiving end of an estimated assessment or additional assessment from SARS or even a notification of an audit, speak to us. Chances are we can help you as we have many others and in the process saving hundreds of millions of rands in undue taxes, penalties and interest.