President Cyril Ramaphosa has signed off on some troubling new tax rules, such as the criminalisation of mistakes in filling out tax returns, and empowering the SA Revenue Services (Sars) to make assessments where the taxpayer fails to respond to requests for information.

Accounting Weekly sounded the alarm last year over the risks of signing off on Sars’ auto-assessments without first making sure all possible deductions were included (such as travel allowances). The auto-assessments were introduced last year for individual taxpayers, but one Saiba member adds another potentially worrying aspect to recent tax developments, saying a corporate client had recently been auto-assessed.

“I think this is a glitch,” says Tamsin Laight of Outfin Solutions inKwazulu-Natal. “You cannot possibly do an auto-assessment on a corporation. It’s much too complex for that.”

“It looks like an error to me,” adds Gauteng-based Saiba member, Grant Richardson. “It appears that the auto-assessment (for individuals) has been written into law, despite many concerns. From reading the procedure, the public comment is pretty much a waste of time as a Sars official summarises the public comment and gives a report to the committee. Sars appears to be judge, jury, law-maker and policeman. So it can do pretty much whatever it wants without any accountability. There needs to be an independent body that regulates both Sars and tax practitioners/taxpayers.”

We previously reported on out concerns about auto-assessments by Sars here. While tax practitioners have reported some improvements in the auto-assessment procedure, there are still some hiccups. For example, third party information from finance houses are not always reflected on the auto-assessment, resulting in some taxpayers paying more than they should.

Perhaps the most troubling of the new rules is the criminalisation of petty mistakes, assuming that any act or omission was done “wilfully”.

The 10 key changes to tax rules

Jean du Toit, head of tax technical at Tax Consulting SA, highlights the 10 key changes recently announced.

On 20 January 2021, The president gave effect to the 2020 tax proposals by signing three tax Acts into law. On 15 January 2021, the President gave his assent to:

  • The Rates and Monetary Amounts and Amendment of Revenue Laws Act;
  • The Taxation Laws Amendment Act
  • The Tax Administration Laws Amendment Act.

These Acts were promulgated on 20 January 2021.

The Rates Act gives effect to changes in tax rates and certain monetary thresholds, whereas the TLAA and the TALAA contain more profound technical and administrative changes. Highlighted below are 10 key changes taxpayers need to know.

1. Withdrawal of retirement funds upon emigration

From 1 March 2021, taxpayers will no longer be able to access their retirement benefits upon completion of the emigration process through the South African Reserve Bank, commonly referred to as “financial emigration”. After this date, taxpayers will only be able to access their retirement benefits if they can prove they have been non-resident for tax purposes for an uninterrupted period of three years. Importantly, taxpayers can still access their retirement benefits under the old dispensation if they file their financial emigration application on or before 28 February 2021. If you miss this deadline, your retirement benefits will be locked in for a period of at least three years.

2. Anti-avoidance rules bolstered for trusts

The anti-avoidance rules aimed at curbing tax-free transfers of wealth to trusts have been strengthened to prevent persisting loopholes. The amendment is directed at structures where individuals subscribe for preference shares with no or a low rate of return in a company owned by a trust connected to the individual. Ongoing changes to these rules again bring into question the thinking that trust structures are tax efficient.

3. Reimbursing employees for business travel expenses

Employees are not subject to tax on an amount paid by their employer as an advance or reimbursement in respect of meals and incidental costs where the employee is obliged to spend a night away from home for business purposes, provided it does not exceed the amount published in the Government Gazette. The TLAA includes an amendment which extends the treatment to expenses incurred on meals and other incidental costs while the employee is away on a day trip. It is important to note that this will only apply if the employer’s policies expressly make provision for and allows such reimbursement.

4. Relief for expats confirmed

Due to the travel restrictions under the Covid-19 pandemic, the days requirement for the foreign employment exemption has been reduced from 183 days in aggregate to 117 days. The relaxation only applies to the aggregate number of days and the requirement that more than 60 of the days spent outside South Africa must have been consecutive remains applicable. This amendment is not a permanent fixture and will only apply to any 12-month period for the years of assessment ending from 29 February 2020 to 28 February 2021.

5. Employer provided bursaries

The Income Tax Act makes provision for the exemption of bona fide bursaries or scholarships granted by employers to employees or their relatives. Historically, employees used this exemption as a mechanism to structure their remuneration package to reduce their tax liability. The exemption will no longer apply where the employee’s remuneration package is subject to an element of salary sacrifice; that is where any portion of their remuneration is reduced or forfeited as a result of the grant of such a bursary or scholarship.

Comment from Tamsin Laight: “(The change to) employer-provided bursaries doesn’t make sense at all.  If I increase my salary to allow for bursary, the cost to the company goes up, but my overall tax liability is still reduced anyway. It’s reduced from what it would have been if we didn’t have the tax free portion. I don’t get it at all. I thought the plan was to upskill our population. Why take this away? I don’t think it is that broadly used anyway as it is quite administrative for HR companies. I myself personally use it.”

6. Tax treatment of doubtful debts

The doubtful debt allowance provision has been amended to bring parity between taxpayers that apply IFRS 9 and those who do not. Where the taxpayer does not apply IFRS 9, the amount of the allowance is calculated after taking into account any security that is available in respect of that debt.

7. Roll-over amounts claimable under the ETI

The Employment Tax Incentive Act has been amended to encourage tax compliance. The amendment determines that excess ETI claims of employers that are non-compliant from a tax perspective will no longer be rolled over to the end of the PAYE reconciliation period.

8. Estimated assessments

The terms under which SARS may issue an assessment based on an estimate has been expanded. SARS may now issue an estimated assessment where the taxpayer fails to respond to a request from SARS for relevant material. The amendment also bars the taxpayer from lodging an objection against the estimated assessment until the taxpayer responds to the request for material.

Comment from Tamsin Laight: “I think the estimated assessment is fine but the fact that you can’t object is not. I feel you should be able to do a special condonation if you did not receive the (required) notice from Sar. I have plenty of cases where notices have not been sent by Sars.”

9. SARS can withhold your refund if you are under criminal investigation

In terms of the Tax Administration Act, SARS is entitled to withhold refunds owed to taxpayers in certain circumstances. The TALAA expands these provisions to determine that if you are subject to a criminal investigation in terms of the Tax Administration Act, SARS is entitled to withhold any refund it owes you, pending the outcome of the investigation.

10. Criminal sanctions for minor tax offences

Previously, a taxpayer would only be guilty of a criminal offence for non-compliance under the Tax Administration Act if they “wilfully” failed to comply with their tax obligations. With the new amendments, non-compliance will constitute a criminal offence where it is as a result of the taxpayer’s negligence. In other words, intent is no longer required; where you are non-compliant as a result of ignorance of your obligations, you may be found guilty of a criminal offence. These offences are subject to a fine or imprisonment of up to two years.

Comment from AW: This is potentially the most concerning development, and is almost certainly unconstitutional. It is likely to be challenged in court at some point.

Final comments

Taxpayers need to speak to their advisors to understand these changes and special heed must be paid to the administrative changes that are now law. The most important change that applies to all taxpayers is the one that criminalises negligent non-compliance. This and other administrative changes mean that taxpayers will be held to a higher standard, which serves as a cue for everyone to take ownership of their tax affairs.