In its 2021 budget, the government announced that the South African Revenue Service (SARS) would set up a specialised High Wealth Individuals’ unit, now commonly known as the HWI unit.
The sole purpose of the HWI unit is to provide the necessary attention and service to taxpayers with high levels of wealth, complex financial structures in place, and their associated compliance.
“The HWI initiative appears to be kicking into gear, with ex-Eskom finance executive Natasha Singh appointed as its director in October 2021. They have since assembled a strong team of individuals, consisting of client-to-client service, technical and audit-orientated professionals,” says Colleen Kaufmann, tax specialist at Tax Consulting South Africa.
“This year’s Budget Speech showed the hand of SARS’ audit strategy with the announcement of the special disclosure requirement for wealthy taxpayers with assets above R50 million. This is proposed to take effect in 2023 with all HNW taxpayer’s assets and liabilities to be disclosed at their respective market values in their tax returns.”
Kaufmann noted that this is not just a warning of future pain to come for wealthy taxpayers and that the HWI unit has already sent out pre-audit questionnaires in the form of compliance verifications to targeted wealthy taxpayers.
“The questions being asked are insightful leading up to the possible 2023 HNW disclosure, as well as telling on possible areas of high risk or non-compliance for HNW taxpayers,” she said.
She added that SARS is specifically asking questions about lifestyle and investment assets, and is targeting the following areas:
- Fixed properties, including when held in private companies, trusts, or other structures;
- Shares in private companies, close corporations, and interests in trusts;
- Increasingly complex financial arrangements, from loan accounts to complex financial instruments;
- Vehicles and boats;
- Specialised attention is focused on cryptocurrency and farming interests;
- Offshore assets/holdings and/or anything outside South Africa.
“The request normally covers a three-year period and SARS provides a standard answer format to the taxpayer for their response,” Kaufmann said.
“This provides for an easy reconciliation on what has been previously disclosed to SARS by the taxpayer and how a taxpayers’ assets have increased or decreased in value in comparison to previous tax return filings.”
What to do when you get a SARS request
Taxpayers are compelled to provide SARS with the information requested, within a stipulated time frame of 21 days. The taxpayer is further reminded in the request that it is an offence to declare false information; and that the failure to provide information and/or answer questions is both administratively and criminally sanctionable, Kaufmann said.
“HNW taxpayers further cannot afford to botch their responses especially due to the vast amount of third-party data available to SARS, including the OECD’s Common Reporting Standards whereby financial information is shared between countries.
“It remains the best strategy that you always ensure compliance. A good starting point is to have a tax diagnostic performed on your e-Filing profile, to gain an understanding into whether your optics are correct regarding your position with SARS vis-à-vis your assets and liabilities.”
This step ensures that a taxpayer can regularise their tax affairs and self-correct through the Voluntary Disclosure Programme (VDP), Kaufmann said.
“The VDP eliminates the possibility of severe sanctions and provides amnesty from criminal prosecution, however, this corrective step is only available to a taxpayer before SARS comes knocking on their door.
“Performing a tax diagnostic with the associated legal privilege of an admitted tax attorney is an important aspect of protecting your Constitutional and taxpayer rights during a potentially sensitive process.”