ENC1035 - Income Tax Audit, Illicit Crimes Unit

Period under Audit:
2005 - 2019
(14 Years of Assessment)

Original Capital amount assessed by SARS:
R196 million

Amount still in dispute post the ADR:
R45 million

Burden of proof successfully discharged:
R151 million

What made this one special.

At the time of our appointment, our Client was severely ill and completely immobile and therefore, unable to visit any of the institutions, such as Banks, for instance, in order to obtain any supporting documents in person.

Furthermore, to add to the dilemma, our Client suffers “Syncopal episodes” that have an adverse effect on his cognitive ability, and whilst he is highly intelligent and mentally astute, the fact of the matter is, that he tires very quickly and within fifteen to twenty minutes of engagement is visible in pain and drowsy. So what would have taken a discussion of an hour now takes well over a day to get through.

Our Client simply did not have the necessary focus and energy required to attend to and be able to compile the supporting documents himself, and he had to rely heavily upon our guidance and assistance. and we were appointed by the Client to assist him with the following related to the Audit performed by SARS for the years spanning 2006 – 2019:

The thorough scrutiny of the line items SARS has identified as Taxable income during the Audit.

The identification of the individual supporting documents required to meet his burden of proof, as well as the facilitation and coordination of the information-gathering process.

The drafting of the appeals related to each line item for review by the appointed Tax Professional.

How did we reach this point.

The method of audit used by SARS, was to obtain bank statements from our Client as well as 3rd parties and analyse the deposits made into these bank accounts to ascertain whether such amounts constitute gross income.

The total outcome of the Audit resulted in additional income identified by SARS as gross income during the audit process, which according to SARS, should have been included in the taxable income of the taxpayer, amounted to R196 million.

Numerous net salary receipts were erroneously included again in the taxable income of theTaxpayer, which would lead to double taxation. SARS were in possession of all the IRP5 documents issued by the various employers but clearly never verified the net income identified against them.

Numerous amounts were included in the Taxpayer’s taxable income, which upon scrutiny was found never to have been received by the Taxpayer, nor was it in favour of the Taxpayer and should never have been included in the taxable income of the Taxpayer. These amounts did not reflect on any of the bank statements either identified by SARS or by us.

The amount of inter-account transfers contained in the annexures constitutes almost 44% of the total liability identified.

No capital transactions i.e. the sale of properties etc. which could easily be verified by SARS were taken into account.

We had our work cut out for us!

Burden of proof.

A very stringent, near impossible, burden of proof was placed upon our Client in that SARS has explicitly stated that they would not accept the taxpayer’s word as evidence in any regard and that the Taxpayer had provided documentation and information (other than the Taxpayer’s word) in relation to each and every amount being objected to, failing which it would be disallowed.

Numerous searches and endless reconciliations and summaries had to be performed to identify and verify each of the transactions, as it otherwise would have been impossible to trace the source of the supporting documents, which had to be obtained from external sources that had to be identified, traced, and contacted in the hope of obtaining these documents.

In addition to the supporting documents obtained, it was also deemed necessary to write a “narrative” explaining to SARS the full background and facts surrounding each of these transactions to put them in a better position to fully understand why the Taxpayer was objecting against the inclusion in taxable income.

We were incredibly fortunate to obtain the majority of the supporting documents required from the other third parties which could be traced and were still in existence, such as law firms who attended to the transfer of specific properties and car dealerships, amongst others.

What is there to brag about?

Considering the extenuating circumstances of this case, we are incredibly proud of the fact that we managed to obtain supporting documents and successfully discharge the burden of proof of behalf of our Client in a total amount of ± R151 million!