“The hardest thing in the world to understand is the income tax” (Albert Einstein)
Albert Einstein’s complaint to his tax accountant says it all and unless you have some knowledge of the Tax Administration Act and are up to date with recent income tax amendments, you are well advised to contact your accountant if you received an income tax auto assessment SMS from SARS.
While an auto assessment for your income tax sounds very convenient and easy, migrating to an online, self-service SARS facility entails a number of risks for you. These include falling victim to the likely increase in scams and fraud expected by the SARS commissioner; relying on third party information you have no control over; being flagged for a SARS audit – as 12% of auto assessed returns already are; or accepting an incorrect or incomplete return by accident or through ignorance, which may even have criminal consequences and could eliminate your ability to dispute the assessment later.
Taxpayers who are being auto assessed are to receive SMSes with the auto assessment result between 1 and 31 August 2020. Some taxpayers have already had the opportunity to view their assessment since 30 July.
The assessment is essentially an income tax return that has been pre-populated or partially completed. Taxpayers can access their pre-populated returns via SARS MobiApp or eFiling, which means you will have to register on eFiling or install the MobiApp.
The partially completed return is pre-populated by SARS using third party data which SARS receives from employers, financial institutions, medical aids and other third parties.
You can accept or reject the assessment, but unless you have some knowledge of income tax laws and regulations, it is best to contact your accountant.
Below are six very important reasons why.
Contact your accountant to manage these six risks
1. The increased risk of scams and fraud
SARS Commissioner Edward Kieswetter has warned people to be vigilant of fraudulent emails and SMSes with false information that claim to be from SARS and look as if they were sent from SARS. Kieswetter says SARS will never request banking details via email, post or SMSes. It is always better to check with your accountant that the communication you received is legitimate.
2. The risk of relying on third party information
Having your return pre-populated with third-party data exposes you to significant risk, as the validity and accuracy of information is not within your control.
According to Kieswetter, SARS will use data it receives from your employer, your bank, pension fund and medical aid to make a calculation through a risk engine to “produce an outcome that should be exactly the same as if you would submit the data to us”. That may apply to some taxpayers but it may well not apply to you.
If the information is not correct, you have a problem. Kieswetter recommends that “if you have not yet received your IRP5/IT3(a)s and other tax certificates like medical certificate, retirement annuity fund certificate and other third party data that are relevant in determining your tax obligations, you should immediately approach your employer or medical scheme or retirement annuity fund or other third party data providers to make sure that they have complied with their submission requirements.”
But even if SARS does capture all your income tax assessment information correctly, the auto assessments, in certain cases, do not include all the allowable deductions.
3. The risk of being flagged for a SARS audit
By 30 July, of the just 62,000 returns that had been submitted, 12% have already been selected for audit. That’s more than 1 in 10 returns being selected for audit. Check with your accountant to prevent exposing yourself.
4. The risk of accepting an incorrect or incomplete return
Given that you are likely a layperson when it comes to income tax laws and regulations, what if you make a mistake? Penalties and even criminal prosecution are risks for any form of non-compliance.
5. The risk of losing the right to dispute the assessment after accepting the assessment
What if you made a mistake and later need to dispute an auto assessment? The Tax Administration Act says a taxpayer can only dispute a decision made by SARS. Accepting an auto assessment is a decision made by the taxpayer and may well mean losing the right to dispute the assessment later.
6. The risk of non-compliance
If you have not accepted the auto-assessment, or if you did not receive an SMS, your income tax return must be filed before 22 October 2020 if you file manually at a SARS branch, before 16 November 2020 if you are a non-provisional taxpayer filing electronically (via eFiling or MobiApp) or by 29 January 2021 via eFiling if you are a provisional taxpayer filing electronically. SARS has warned that it will issue letters for late and outstanding returns and impose penalties as provided for in the Tax Administration Act, 2011, immediately after the deadline has passed.
In general, SARS has promised to act more decisively than ever before against those who do not comply due to negligence or criminal intent. SARS says it has already identified cases of taxpayers trying to commit fraud through various means – for example overstating deductible expenses. It will enforce administrative actions in terms of TAA including prosecution if taxpayers fail to respond appropriately, and will name and shame those taxpayers convicted of criminal offences.
It really is best to contact your accountant – whether you have received an auto assessment or not and whether you have accepted it or not – to ensure you cover yourself against your exposure to all these risks.
Further reading and videos
Read this article from SAICA “Tax returns: do the right thing or face the consequences” here highlighting the main points of the SARS media and stakeholder briefing regarding the 2020 Tax Season and auto assessments.
Click here to read SABC News’ coverage of SARS’ explanation of how the automated assessments work. You can also watch this video to see the Auto Assessments on eFiling, or this video to see the Auto Assessments on MobiApp.
If you are interested in how the calculations for the auto assessments are done, you can find out in SARS’ article here.