Do you have undisclosed foreign assets?
Taxpayers who are still undecided on whether to make use of the window of opportunity to disclose undeclared offshore assets and income are fast running out of time.
Those who do not make use of the Special Voluntary Disclosure Programme (SVDP) may open themselves up for massive penalties and even criminal prosecution.
The world has changed since the last amnesty given to taxpayers in 2003. Starting this year, Sars will be able to automatically exchange information with several other tax jurisdictions.
Globally, banks and financial institutions will be obliged to share account and financial information of their foreign clients in terms of the new Common Reporting Standard (CRS).
Taxpayers have until 31 August to shed light on their dealings offshore.
Maitland associate Nel Schoeman says there is some time left, but the more complex a taxpayer’s affairs, the more difficult it is going to be to submit a complete application in time.
Sars requires that the taxpayer obtain the total undeclared offshore asset value for each year from 2011 to 2015. Those balances have to be converted to rand under the historic exchange rate. Sars then requires the taxpayer to include 40% of the highest rand value of those five years into the taxpayer’s 2015 tax return as taxable income.
That would in most cases push the taxpayer into the 40% tax bracket if they are not already taxed at that rate. This means the taxpayer pays 40% on 40% of their income, which amounts to an effective 16% penalty.
“A big point of frustration is that people do not consider the time it takes to obtain the appropriate information necessary to make a full disclosure,” says Schoeman.
The Swiss banking system, for example, has been streamlined to accommodate this process. However, it is almost impossible to get information in the right format from many other countries. They simply do not have the systems in place to accommodate our tax calculations.
Ernest Mazansky, member of the international tax committee of the South African Institute of Tax Professionals, says it is typical of South Africans to wait until the last minute. That said, the delays warrant some understanding because the final rules only became clear at the beginning of the year.
“It is not always easy to get the required information in the prescribed format from the foreign banks and institutions,” he adds.
Sars and the Financial Surveillance Department of the South African Reserve Bank (FinSurv) were quite understanding during the 2003 amnesty and 2010 Voluntary Disclosure Programme.