The South African Revenue Service (Sars) has been hinting at introducing a wealthy individual “specific asset” disclosure for some time – and it is finally here!

As of the commencement of the 2023 Tax filing season, individuals holding assets valued at R50-million or more now need to provide a “high level” disclosure to Sars. Although below the threshold to get into Sars’ High Wealth Individual (HWI) club, this new requirement does mean an increased reporting and disclosure obligation on certain wealthy taxpayers. At the upper echelons of wealth, if you received the Welcome Notice from the HWI Unit from late 2021 onward, the requirement to complete this disclosure cannot be questioned.

What remains uncertain, however, is whether this high-level disclosure is simply Sars doing their due diligence, or if there is strategic intent to open an investigative window into the wealth of affluent taxpayers. If the latter, this will allow Sars to identify non-compliance and delve deeper into what they believe to be “unexplained wealth”. 

Are your latches bolted down? There are rough seas ahead when you look at the in-depth disclosure now asked by Sars for persons with assets over R50m!

OUT FROM THE SHADOWS, AND INTO THE LIGHT

While many might believe that this amendment to the income tax return form (ITR12) has come out of left field, Sars has forewarned this level of scrutiny for several years now. 

As far back as 2020, the revenue authority highlighted exactly what they needed to do to strengthen the tax treatment of individuals, including introducing more stringent verification processes for the remittance of funds offshore:

Sars’ strong follow-through came in April 2021, with the introduction of the HWI Unit, which was notionally concretised with the appointment of Natasha Singh as its Director. Thereafter, Sars and National Treasury proposed the new high-level disclosure during the 2022 Budget Review, for a “catch-all” where taxpayers are wealthy, but still below the entry fee for the HWI Unit.

This in-depth level of scrutiny falls directly in line with Sars’ strategic objectives and the recommendations made by the Financial Action Task Force (FATF) and the Davis Tax Committee. 

Ultimately, this new disclosure is just what Sars needed to open the floodgates on auditing taxpayers living beyond their documented means; something the revenue authority has been doing from the shadows since the early 2000s.

PEERING THROUGH THE CRACKS

The new R50-million disclosure does provide Sars with the perfect opportunity to strengthen tax treatment and ensure that any non-compliance is both “hard and costly” on the offending taxpayer.

At a high level, this “disclosure” means:

• Compulsory disclosure applicable to taxpayers who hold a cumulative asset value exceeding R50-million;
• This includes both local and foreign assets, and requires the declaration of specified assets, at cost and market value; 
• The disclosure requirement is effective immediately, meaning for the 2023 filing season, which opened 07 July 2023; and
• The purpose is to assist Sars with the detection of non-compliance or fraud through the existence of unexplained wealth.

Sars will now have additional proof of the source of these specified assets and their values, allowing them to cross-check this with previously declared information, ensuring the identification and eradication of any non-compliance.

KEEPING THE INVESTIGATIVE WINDOW CLOSED

It remains clear that Sars will continue to investigate the wealth of affluent taxpayers, through various avenues. Going forward, qualifying taxpayers should handle all disclosures with care, and where historically non-compliant, should latch their bolts now, before the storm arrives. 

The benefit of a tax attorney is that you can discuss your tax affairs with legal privilege. This safety is not afforded by other tax professionals. The 2022/23 Sars disclosure is an important filing in that a very detailed disclosure goes on a permanent record, which means you must be able to defend your filing many years from now. 

On new and even existing clients, our tax practice has implemented a HWI Precursory Due Diligence Protocol (“PDDP”), which effectively mirrors a Sars Analysis and initial steps of a Sars forensic audit – you don’t need to belong to the HWI club to gain access with us! 

The PDDP is performed by a small, dedicated team including a tax attorney, Professional Tax Specialist (SA), CA (SA) and high-wealth tax planning expert, to ensure that the 2022/23 return can be submitted with confidence.

Where the numbers do not add up, the Sars VDP route remains the most viable route to self-correct and with no criminal prosecution and administrative penalties. The VDP is not available where a Sars investigation has commenced, so taxpayers holding an asset value of R50 million or more, have a limited window to get an extra check done on their taxes before the 2022/23 tax filing. Simply having your advisor’s assurance that all stack up, is no longer sufficient and the “trust but verify” approach should ideally be followed.

Written by Jashwin Baijoo, Head of Strategic Engagement and Compliance at Tax Consulting SA