Capital Reconciliations done by SARS

For some taxpayers, SARS requires an Asset and Liabilities schedule with their annual income tax return. This is done by SARS in order to determine whether you are ‘living within your means’ and not hiding anything, which might result in severe penalties being levied due to under or non-declaration of income.

Basically SARS take a look at the movement in your Assets and Liabilities from one year to the next; they then take into account the income that you have declared to them and any expenses they know about – such as medical expenses and bond repayments – from this they then determine whether you had sufficient funds available to support the movement in your net assets and to support your lifestyle – if you don’t, this reconciliation can then trigger a full investigation of your tax affairs.

Certain circumstances will also result in SARS looking into your personal assets and liabilities. These include:

  • Low level of income received from profitable business trade
  • Assets increasing without an alternative source of income or external funding
  • Repeated losses are incurred or low business income is earned without the reduction of assets
  • Your withdrawals do not match your living expenses

Remember ultimately this reconciliation can be seen as sufficient evidence that tax has been evaded! Don’t forget it was exactly this reconciliation that finally saw Al Capone put behind bars!!

Should you require any further information, please do not hesitate to contact us.

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