Bring historic tax defaults into the open-carefully.

01

Tax type

Corporate Income Tax 6 examples

Examples of defaults that may arise in this tax category.

Income Left Out of a Tax Return

A company discovers that income recorded in its accounting records was not included in its income tax return. The omission may have resulted from an accounting, mapping or reconciliation error and may have caused taxable income to be understated.

Income Declared in the Wrong Tax Year

A company treated income as taxable only when payment was received, when the income should have been recognised in an earlier year. An incorrect understanding of the tax timing rules may therefore have resulted in an historic understatement of taxable income.

Expenses Incorrectly Claimed

A company claimed expenditure as tax deductible which was subsequently found to be capital, private or otherwise non-deductible. The error may have arisen from an accounting classification or an incorrect interpretation of the tax legislation.

Overstated or Unsupported Expenses

Expenses appearing in the accounting records were deducted for tax purposes but were duplicated, overstated or could not be substantiated. A bookkeeping or tax reconciliation error may consequently have resulted in taxable income being understated.

Foreign Tax Credits Incorrectly Claimed

A company claimed a foreign tax credit which was not available, was claimed in the wrong period or was calculated incorrectly. Complex foreign tax and treaty rules can result in an unintended understatement of South African tax.

CFC Income Not Declared

A South African taxpayer held an interest in a foreign company but did not account for income potentially attributable under the controlled foreign company rules. The taxpayer may, for example, have assumed that foreign profits were taxable only once distributed to South Africa.

02

Tax type

VAT 6 examples

Examples of defaults that may arise in this tax category.

Supplies Incorrectly Zero-Rated

A business treated supplies as zero-rated when they should have been subject to VAT at the standard rate. An incorrect interpretation of the VAT rules may therefore have resulted in output VAT being understated over one or more VAT periods.

Input VAT Incorrectly Claimed

A business claimed input VAT on expenditure for which an input tax deduction was not permitted. This may result from incorrect VAT apportionment, an accounting error or a misunderstanding of the input tax rules.

VAT Declared in the Wrong Period

A business accounted for output VAT only when its customer paid, instead of in the VAT period in which the VAT liability arose. The treatment may have assisted cash flow but resulted in VAT being declared later than required.

Sales Invoices Omitted From VAT Returns

Sales invoices were recorded in the accounting system but inadvertently excluded from the VAT report and VAT return. A systems, bookkeeping or reconciliation error may therefore have caused output VAT to be understated.

Property Transaction Incorrectly Treated for VAT

A property transaction was treated as subject to transfer duty when it should have been treated as a VAT transaction. The incorrect tax characterisation may result in VAT that should have been declared remaining unpaid.

Cross-Border Supply Incorrectly Zero-Rated

A business assumed that a supply involving a foreign customer automatically qualified for zero-rating. If the statutory requirements for zero-rating were not met, output VAT may have been understated.

03

Tax type

Employees’ Tax / PAYE 4 examples

Examples of defaults that may arise in this tax category.

Fringe Benefit Not Included in Payroll

An employee received a taxable fringe benefit which was not processed through payroll and no employees’ tax was withheld. This can arise because of a payroll configuration error or an incorrect understanding of the fringe-benefit rules.

Cash Payments Made Outside Payroll

Additional payments, allowances or bonuses were paid directly to employees without being processed through payroll. PAYE may consequently have been understated even though the payments were correctly recorded in the company’s accounting records.

Incorrect Payroll Tax Treatment

A payroll system was incorrectly configured so that a taxable payment was treated as non-taxable. The same error may have continued over numerous payroll periods before being identified.

Workers Incorrectly Treated as Independent Contractors

Payments to individuals were treated as payments to independent contractors when employees’ tax should potentially have been withheld. The default may arise from an incorrect interpretation of the nature of the working relationship.

04

Tax type

Capital Gains Tax 4 examples

Examples of defaults that may arise in this tax category.

Disposal of an Asset Not Declared

A taxpayer sold shares, property or another asset but the disposal was inadvertently omitted from the income tax return. The resulting capital gain may therefore never have been subjected to tax.

Incorrect Base Cost Used

A taxpayer calculated a capital gain using an incorrect base cost or included expenditure that did not qualify as part of the asset’s base cost. The resulting capital gain was consequently understated.

Capital Gain Declared in the Wrong Year

A taxpayer assumed that a capital gain arose only when the sale proceeds were received. The disposal may in fact have occurred in an earlier tax year, resulting in the capital gain being declared too late.

Proceeds From Disposal Understated

The proceeds used to calculate a capital gain did not include all amounts required to be taken into account. This may arise from an accounting error, unusual transaction terms or an incorrect interpretation of the CGT rules.

05

Tax type

Personal Income Tax and Foreign Income 7 examples

Examples of defaults that may arise in this tax category.

Foreign Income Not Declared

A South African tax resident earned income offshore but assumed it was not taxable because the money was earned or retained outside South Africa. Foreign earnings may still have South African tax consequences for a South African tax resident.

Foreign Investment Income Omitted

Interest, dividends or other investment returns earned through an offshore bank or investment account were not included in the taxpayer’s South African return. The taxpayer may simply have believed that offshore investments fell outside the South African tax system.

Foreign Capital Gains Not Declared

A South African tax resident disposed of foreign shares, investments or property but did not declare the resulting capital gain in South Africa. The error may arise from the assumption that only South African assets are subject to capital gains tax.

Taxpayer Incorrectly Believed They Were Non-Resident

A taxpayer treated themselves as non-resident and declared only South African-source income, but subsequently discovered that they remained a South African tax resident or gained tax residency in earlier years. Foreign income omitted during those years may consequently need to be addressed.

Cessation of Tax Residence Not Correctly Declared

A taxpayer ceased South African tax residence but failed to account correctly for the deemed disposal of certain assets on cessation of residence. The resulting capital gain, sometimes referred to as an exit tax liability, may have been omitted from the return.

Double Tax Treaty Incorrectly Applied

A taxpayer relied on a double tax agreement to exclude foreign income from South African tax but subsequently discovered that the treaty did not provide the exemption assumed. Complex treaty residence and taxing-right rules can result in genuine interpretation errors.

Foreign Income Declared at the Wrong Amount

Foreign income was declared, but currency conversion, timing or calculation errors resulted in too little income being reported in rand. A seemingly small calculation error can create recurring defaults over several tax years.

06

Tax type

Crypto Assets 3 examples

Examples of defaults that may arise in this tax category.

Crypto Gains Not Declared

A taxpayer sold or exchanged crypto assets without declaring the resulting taxable income or capital gains. The omission may arise because the taxpayer assumed that transactions conducted through a crypto platform were outside the normal tax rules.

Crypto-to-Crypto Transactions Overlooked

A taxpayer declared gains only when cryptocurrency was converted into rand or other fiat currency and overlooked exchanges from one crypto asset into another. Transactions that do not involve a cash withdrawal may nevertheless have tax consequences.

Crypto Trading Incorrectly Treated as Capital

Frequent crypto trading profits were treated as capital gains when the circumstances indicated that the amounts should have been treated as revenue. An incorrect interpretation of whether the activity was investment or trading may therefore have resulted in an understatement of tax.

07

Tax type

Donations Tax 1 example

Examples of defaults that may arise in this tax category.

Donation Not Declared

A taxpayer transferred money or an asset to another person without considering whether donations tax was payable. The transaction may only later be identified as a taxable donation that should have been disclosed to SARS.

08

Tax type

Transfer Duty 2 examples

Examples of defaults that may arise in this tax category.

Value of Property Transaction Understated

A property transaction was reported to SARS using an amount lower than the amount or value that should have been taken into account for transfer duty purposes. The error may arise from incorrect documentation, valuation or an incorrect understanding of the transaction.

Incorrect Tax Treatment of a Property Acquisition

The parties applied an incorrect tax treatment to a property acquisition, resulting in too little transfer duty being paid. Complex agreements involving connected parties, multiple assets or unusual consideration can increase the risk of such errors.

09

Tax type

Dividends Tax 3 examples

Examples of defaults that may arise in this tax category.

Dividends Tax Not Withheld

A South African company paid a dividend to a foreign shareholder without withholding dividends tax because it assumed that a payment to a foreign shareholder was automatically exempt. The resulting withholding tax liability may only be identified later.

Incorrect Treaty Rate Applied to a Dividend

A reduced dividends tax rate was applied under a double tax agreement, but the requirements for the reduced rate were not satisfied. An incorrect treaty interpretation may therefore have resulted in too little dividends tax being withheld.

Dividend Incorrectly Treated as Exempt

A dividend was treated as exempt from dividends tax based on an incorrect understanding of the shareholder’s status or the applicable exemption. The error may only become apparent during a later tax or corporate review.

10

Tax type

Withholding Tax on Interest 2 examples

Examples of defaults that may arise in this tax category.

Interest Paid Offshore Without Withholding Tax

Interest was paid to a foreign lender without withholding tax because the payer assumed that payments to non-residents were not taxable in South Africa. The applicable domestic legislation or treaty may subsequently show that withholding was required.

Incorrect Treaty Rate Applied to Interest

A reduced treaty rate was applied to interest paid to a non-resident when the requirements for that rate were not met. An incorrect interpretation of the double tax agreement may result in an historic withholding tax shortfall.

11

Tax type

Withholding on a Non-Resident Sale of Immovable Property 2 examples

Examples of defaults that may arise in this tax category.

Failure to Withhold on a Property Sale

South African immovable property was purchased from a non-resident seller but the required amount was not withheld from the purchase consideration. The parties may simply have been unaware of the special withholding rules applicable to non-resident sellers.

Seller’s Non-Resident Status Overlooked

A property transaction was completed without identifying that the seller was non-resident for South African tax purposes. As a result, a withholding obligation relating to the purchase price may have been missed.

12

Tax type

Securities Transfer Tax 2 examples

Examples of defaults that may arise in this tax category.

STT Not Accounted for on a Share Transfer

Shares were transferred between parties but securities transfer tax was not declared or paid. The omission may arise because the parties focused on the income tax or capital gains tax consequences of the transaction and overlooked STT.

Group Share Transfer Incorrectly Assumed to Be Exempt

Shares were transferred as part of an internal restructuring and the parties assumed that no securities transfer tax was payable. A later review may establish that the relevant exemption was unavailable or that its requirements were not satisfied.

13

Tax type

Other Common Tax Errors 5 examples

Examples of defaults that may arise in this tax category.

Income Received Into a Separate Account

Income was received into a separate bank account, payment platform or foreign account and was never brought into the taxpayer’s normal accounting or tax reconciliation process. The omission may have been accidental but may have continued unnoticed for several years.

Accounting Error Repeated Over Several Years

An incorrect accounting treatment was built into the taxpayer’s systems and automatically repeated from year to year. Once identified, the taxpayer may discover that the same tax default affects numerous historic tax returns.

Incorrect Interpretation of the Tax Law

A taxpayer adopted a particular tax treatment based on its understanding of the legislation but later discovered that the position was incorrect. Tax defaults can arise from incorrect tax positions and are not limited to bookkeeping mistakes or omitted income.

Transaction Not Reported to the Tax or Finance Team

A significant transaction was completed by the business but the finance or tax team was not informed of it. The accounting entries may have been processed without anyone considering the separate income tax, VAT or withholding tax consequences.

Historic Tax Error Discovered During Due Diligence

A tax default is identified years later during the sale of a business, investment process, audit preparation or internal tax review. The underlying error may relate to income tax, VAT, PAYE or another tax and may potentially be considered for VDP before SARS identifies it.