Be sure to scrutinise your tax auto-assessment before accepting it

If you are one of more than three-million taxpayers to have received an auto-assessment, you need to go through your return very carefully before simply clicking accept.

If you have simple tax affairs, an auto-assessment may have made your life easier but Doné Howell, director of tax at BDO, says with it being implemented for the first time, there have been plenty of errors.

“This is only to be expected in the first year of implementation and most of the errors relate to discrepancies between the verification, which the third party institutions (banks, medical schemes, retirement annuity (RA) funds, and employers) provided to the SA Revenue Service (Sars), and the actual tax certificates. In other cases, there is simply no information prepopulated on the return,” she told Tax Indaba 2020 last week.

Howell explains that in the current tax year, Sars implemented a three-phase approach that was intended to focus more on verifying third-party data with a view to decreasing the effort and time required from taxpayers and tax practitioners.

The information that you previously would have filled in on your tax return is now being sent directly to Sars by several third-party providers and not just your employer. This would now include, for example, your medical scheme tax certificate, your IRP5 from your employer, your retirement annuity (RA) certificate and your interest certificate. This information is then used by Sars.to prepopulate your tax return. The idea is that when you receive an SMS from Sars to say that you have been auto-assessed, all you have to do is double-check the information already filled in for you and click “accept”. 

However, since the notices of auto-assessments went out via SMS in August, some taxpayers and their practitioners have identified problem areas:

• Incorrect information supplied by third parties 

Joon Chong, partner at Webber Wentzel, warns that if any amounts on your third-party returns are not correct and your auto-assessment reflects the same incorrect information, you have to contact the relevant third party to amend the information they have sent to Sars before the Revenue Service will update your auto-assessment.  

Howell says the initial concern is that the end of May was the deadline for the third-party providers to send their data to Sars.

“Between May and July, it was up to Sars and the third-party providers to reconcile the data. In most instances, the information has been spot-on but there has then been a discrepancy between the information sent to Sars and the information sent to the taxpayer on their certificates after July. We haven’t figured out why there is this mismatch. It might be a timing issue or a question of needing to refresh your tax return so that the latest data pulls through,” she says.

• Some prepopulated information cannot be amended 

The section showing the interest you earned on savings or investments for the year is prepopulated and you cannot rectify it if incorrect.

“For example, we have nonresident taxpayers who were issued interest certificates from their banks and the bank does not indicate whether the taxpayer is an SA resident or not. In these cases, the nonresident taxpayers’ returns have now been prepopulated with SA interest.

“Neither the tax practitioner nor the taxpayer can reduce that figure or remove it. You are only allowed to increase that amount,” Howell says. This is a problem because typically, interest received by or accrued to a nonresident from a source within SA is exempt from normal tax in SA.

She also notes that the interest is noted as a lump sum on the auto-assessment. This means, for example, if you have several different interest-earning investments, you must add up the different amounts as reflected on the actual tax certificates issued by your financial institutions and then check if the total tallies with the amount reflected on the auto-assessment.

Howell says if you disagree with any information on your auto-assessment, you should not click accept but rather take it up with your tax practitioner or with your third-party providers.

• Insufficient education around auto-assessments 

While Sars may have made a fanfare around the new auto-assessment process, in many cases it was eclipsed by Covid-19 news. The notifications alerting taxpayers that they had been auto-assessed were sent directly to the taxpayers in August via SMS.

“With so many fraudulent scams doing the rounds, many taxpayers either ignored the message or had no idea what to do with it. We had hundreds of irate clients contacting us to query these SMS notifications and they were frustrated that they had been contacted directly, when they have appointed tax practitioners to deal with their tax issues,” Howell explains.

At this stage, auto-assessment notifications are only sent directly to taxpayers and not to tax practitioners.

• Shortened timelines

“Given the significantly shortened tax filing season for 2020, you should prepare for submission as early as possible and not wait until the last day to prepare supporting documents, check and submit your returns,” Chong warns.

When to reject an auto-assessment 

Chong says you should reject your auto-assessment if you:

• Have qualifying medical expenses not recorded on the medical scheme certificates where you can claim the additional medical expenses tax credit. These would be, for example, qualifying medical expenses incurred by you and your dependants in the 2020 year of assessment. You should prepare schedules of the amounts incurred and be ready to upload these schedules, together with documents showing proof of the expenses, such as invoices, if your returns are selected for verification.
• Have other revenue streams in the year which need to be declared such as net rental income or losses.
• Need to submit logbook claims for business kilometres against travel allowances.
• Have made donations to public benefit organisations, which allow you to claim tax deductions.
• Have capital gains or losses from disposals of assets in the year, which are not recorded in your IT3c certificates.