Who Owns Your Home—the Bank, or You?
20 SeptemberIt seems like it was just the other day that I’d finished submitting the 2023 tax returns for of my clients—mainly because for two of them, it literally was.
For the clients in question, the late submission was due to delays in obtaining IRP5 certificates from various providers. SARS has imposed the inevitable administrative penalties for late submission, and as I am writing this, I am having a bit of an argy-bargy with SARS concerning the remittance of such penalties.
This brings us to the first (and most important) area in which taxpayers need to prepare for the 2024 Filing Season, being …
Request your IRP5 certificates (especially for lump sums)
This might seem to be a strange place to start. After all, the first phase of SARS’ efforts to automate and simplify tax return submission some years back was the upload of IRP5 certificates.
For the most part, this phase has been successful—to the point where for taxpayers who earn a salary, one can almost take it for granted that their return will be prepopulated with the relevant information.
However, when it comes to lump sum payments, things are a bit more complicated. As I soon discovered with my two clients, the struggle to obtain IRP5 certificates was the prime reason for the late submission of their 2023 returns.
Both cases involved lump sum payments from one or more retirement funds.
Client 1 had retired as a school principal, and thus became entitled to a payout from the Government Employees’ Pension Fund (GEPF). Unfortunately, what should have been a simple calculation that the GEPF will have done thousands of times before, ended up being an ordeal taking the best part of a year.
Client 2 had sadly died during the year—their death thus triggered payouts from various funds, as well as the balance of certain annuities that the client has been receiving. Some of these lump sums were from funds from which the client had not yet drawn an income, making it difficult to trace the various sources.
As is normal with lump sum payments, the employer or fund is required to apply to SARS for a Tax Deduction Directive—a formal process that results in SARS instructing the employer or fund to deduct a specific amount of tax.
The employer or fund is then required to issue an IRP5 showing the lump sum amount paid, as well as the tax deducted. Such IRP5 must also include the directive number provided by SARS. Once issued, the tax certificate would be uploaded as part of either an interim or final EMP501 employer reconciliation.
Where things went wrong in both cases was that the employer or fund had not only failed to issue an IRP5 certificate—they had also failed to complete the required upload to SARS. I was therefore blocked from submitting the 2023 returns, as there were one or more directives unmatched to a tax certificate.
By the time we eventually obtained all the tax certificates, these then had to be captured manually onto e-filing—resulting in the returns being referred for a manual assessment. I’m still waiting for SARS to complete these assessments on both clients.
Of course, the delays meant that the returns were submitted way beyond the submission deadline—and with there no longer being any mechanism for applying for extensions, SARS hit both clients with administrative penalties.
As things stand at the moment, the score is 1 – 1 between myself and SARS. It seems that the assessor for Client 2 had some sympathy due to the death of the taxpayer, and remitted the penalties. In the case of Client 1, SARS requires a bit more convincing.
The upshot of this somewhat long-winded tale? If you know that you have received any form of lump sum during the 2024 tax year (including retirement lump sums, retrenchment payouts, and gratuities), get hold of the employer or institution concerned urgently.
With that out of the way, we turn to the second set of figures that should be uploaded to SARS (but often isn’t), which is …
Request tax certificates for all investment income
In addition to uploads of IRP5 certificates from employers, SARS also requires financial institutions to upload details of investment income. This includes local and foreign interest, distributions from Real Estate Investment Trusts (REITs), foreign dividends, and any withholding tax relating to such investment income.
In my experience, the results of this upload exercise are a bit hit-and-miss—I’ve seen so many errors over the years that checking the uploads to the physical certificates is vital. Fortunately, the fields on the tax return aren’t locked, thus allowing you to make the necessary adjustments.
However, I’ve also noticed that a number of institutions no longer issue such certificates as a matter of course. You therefore need to keep a proper track of all your investments, and make sure that you obtain a tax certificate for each one.
Also, don’t limit your scrutiny to financial institutions. Medical schemes pay interest on medical savings accounts, Eskom pays interest on credit balances, and SARS pays interest on overpayments of provisional tax—all of which needs to be declared.
Finally, information relating to realised capital gains and losses on share portfolios, unit trusts, and exchange-traded funds is not included in any upload, and therefore needs to be captured manually. You can be sure that SARS will be in possession of such information, so don’t be tempted to leave this off your return.
Medical schemes, RAs, and Tax-Free Savings Accounts
This is the last category of information that requires uploads from the institution concerned. The information required is as follows:
Medical scheme membership
The certificate from your medical scheme includes the number of beneficiaries covered, total contributions received by the scheme, and medical expenses not covered by the scheme. These three pieces of information are used to determine the medical tax credit to which you may be entitled.
It is important to note that the unrecovered medical expenses that appear on the certificate relate solely to the shortfall on claims submitted where the medical scheme has not covered these in full. The medical scheme will have no record of unsubmitted claims, and thus won’t be able to account for these.
If there are any errors in these figures, you need to urgently contact your medical scheme, since e-filing does not allow you to overwrite any of the uploaded information (unlike the case with investment income).
If you have any medical expenses that were not submitted to the scheme, or any costs relating to yourself or a dependent due to a disability, you need to compile a separate schedule to claim these. This claim needs to be entered on the return manually.
Retirement annuity (RA) funds
Any institution to which you have made contributions to an RA fund is required to upload such contributions to SARS. It is important that you check that they have done so, since—as is the case with medical scheme membership—such information cannot be entered manually.
The information relating to your RA contributions is vital, even if such contributions exceed the allowable annual limit. Any excess contributions are carried over to the following tax year, and any remaining disallowable contributions at retirement are added to the tax-free portion of your lump sum.
Tax Free Savings Accounts (TFSAs)
Institutions that hold your TFSA investments are required to upload details of your contributions, income, and capital gains / losses.
While this information should not impact your tax position, SARS uses it to ensure that you remain within the annual and lifetime limits. With the tax penalties for exceeding such limits being quite severe, it’s vital that you check that the uploaded information is correct.
WRITTEN BY STEVEN JONES
Steven Jones is a registered SARS tax practitioner.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.