Will your lifestyle survive an audit?
Date: 2010-02-25
Pravin Gordhan in his first budget speech didn’t make any changes to the existing tax policies that will directly or dramatically affect the property industry. However, the introduction of “lifestyle audits” may dampen the spirits of those potential property buyers whose tax affairs are not up to scratch.
Even though “lifestyle audits” have been hyped in the media recently, no where in his speech did Pravin Gordhan limit such audits to loud-mouthed politicians and government officials.
Lifestyle audits, a means of matching the lifestyle of taxpayers with their tax return, have been successfully employed by the Internal Revenue Services (IRS) in America for many years and have proven to be an efficient way of identifying those who are “creative” in declaring their taxes.
Currently, when purchasing a property the attorney attending to the transfer of the property has to obtain a tax clearance certificate from SA Revenue Services (SARS) for the agent, the seller and the buyer. Should the tax affairs of any of the parties to the transaction not be up to date, they will have to “pay up” before SARS will allow the transaction to proceed. This opens the door to the effective implementation of “lifestyle audits”.
How can you purchase a property of R3 000 000, when you are declaring an income of only R45 000 per month? Even if you obtained a 100% mortgage bond, your income must be between R80 000 to R100 000 to qualify for such a bond. And SARS is not oblivious to this! If your income doesn’t match you lifestyle of choice, SARS will assist you in identifying such income, taking their fair share of course.
If reading this gives you palpitations, don’t fear. All is not lost yet! Pravin Gordhan has given you a window period of a year as from November 2010 to “come clean”. However, if you head remains stuck deep in the sand thereafter, expect to pay a 200% penalty fee.
Suze Orman once said “the more tax you pay, the richer you are getting”. In order to obtain true financial freedom and grow your asset base, you need to rid yourself of your guilt shackles. Avoid having you lifestyle questioned by living within your means and “paying to Caesar what is due to Caesar”.
Tess Rodrigues
Managing Director