Have you taken the necessary care and diligence in completing your corporate income tax return?
- Helene Fourie.
Corporate income tax return (ITR14) completion is becoming increasingly challenging for some taxpayers due to the requisite information and detail that must be disclosed, in order for SARS to issue an accurate assessment.
Failure to provide full disclosure and correctly complete the prescribed forms can result in penalties and far-reaching assessments by SARS.
Taxpayers are also reminded to retain all supporting information for a period of five years after the date of submission of the return.
Three-year prescription period
Section 99(1) of the Tax Administration Act provides for a three-year prescription period, after which SARS cannot reopen an assessment unless a taxpayer has committed fraud, made a misrepresentation or there has been non-disclosure of material facts.
If any of the aforementioned instances are found to apply, section 99(2) of the Act can be exercised by SARS, which states that the prescription rule will no longer apply, thus giving SARS the right to reopen an assessment beyond the prescription period of three years.
This means that failure to accurately complete the ITR14 could result in a subsequent income tax assessment by SARS beyond the three-year period.
Tax computation
It is important to ensure that the tax computation section of the ITR14 is completed meticulously and that deductions are claimed under the correct category or section. Failure to do so could compromise the accuracy of the disclosure in the tax return and therefore the prescription of the assessment as well.
Capital gains tax
Full and proper disclosure of capital gains tax transactions is essential, especially where capital losses are incurred. Proper disclosure will ensure that the correct balance of the capital loss is carried forward to future tax years, for set-off against future capital gains. If the capital loss is not disclosed properly, this could give rise to the company forfeiting the capital loss.
Understatement penalties
Failure to correctly complete the ITR14 could result in understatement penalties being levied by SARS. This could vary from 10% to 150% or even 200% should the taxpayer’s behaviour be considered obstructive or a repeat case. It should be noted that any adjustment to an assessed loss will be subject to an understatement penalty, at 28% of the calculated shortfall.
Conclusion
It is critical for taxpayers to understand the consequences of submitting inaccurate information on the ITR14 filing, even if this is unintentional. Due care and diligence must be taken to ensure that taxpayers can rely on the three-year prescription rule and avoid having SARS levy understatement penalties.
In order to mitigate any potential risk, the taxpayer is advised to consider undertaking a review of their corporate tax returns submitted over the last three years. The good news is that should errors be identified, there are certain procedures that can be followed (depending on the type of error) to rectify these.
For many taxpayers, however, a proactive approach such as this is beyond their core capabilities or their capacity. This is where it becomes crucial for specialist input. Arro is able to provide our clients with expert guidance and assistance, working with them to develop proactive tax solutions. Importantly, the Arro team is able to recognise early on the potential challenges that the taxpayer may face, identifying and managing risks, and determining planning opportunities.
The key message for taxpayers is: don’t wait for tax challenges to emerge; seek out specialist advice now to ensure that you remain compliant and firmly in control of your financial future.
Published: 01 September 2021