At the launch of the 2019 filing season, SARS publicly stated that “Many taxpayers still do not declare rental income from properties and we will improve our data matching in this regard by collaborating with the Deeds Office” and that “This matching will also allow us to better enforce non-compliance in the declaration of Capital Gains Tax,”. In our experience, this was not an empty threat. Here is what we have seen happen to a few taxpayers:
- SARS does a deed search to establish how many properties are registered to the taxpayer’s name; and
- If the taxpayer owns more than one, they will typically send the taxpayer a letter requesting an explanation for the absence of rental income on the tax return.
They are also checking disposals of fixed property and comparing that to the taxpayer’s returns to see if all the capital gains tax have been declared and taxes paid (often even going so far as providing an estimated capital gains tax liability). We have also seen requests from SARS to explain how the taxpayer funded the purchase of the property (effectively checking whether the source from after taxed money). These letters also often threaten with an understatement penalty of 200% for intentional tax evasion. We are yet to see SARS pursue criminal prosecution for these offences but suffice it to say that failing to declare is indeed a criminal offence that could carry jail time.
If you own fixed property and have not declared any taxes attendant upon such property (or the money used to acquire the property), it is only a matter of time before SARS comes knocking at your door. At that point in time, it is almost too late to avoid the penalty and there is a risk of spending some time in jail. Taxpayers who have not declared would be well advised to consider applying for Voluntary Disclosure Program relief, before SARS starts asking questions. A successful VDP application means the taxpayer legally avoids the understatement penalty SARS would have imposed if they discovered the non-compliance themselves and also, the taxpayer avoids potential jail time.
We have a 100% VDP success rate. Contact us for assistance with a VDP application.
There could, however, be many reasons why there is no tax consequences attached to your investment property (or at least, not yet) and in these cases, the response to SARS’ questions needs to be properly drafted to avoid unnecessary tax being raised by SARS and unnecessary objection processes to ensue. Contact us for assistance in this regard.