On 5th April 2013, the Commissioner: South African Revenue Service issued Government Notice number 260, which appeared in Government Gazette number 36346 on 5th April 2013, setting out returns of information which must be submitted by third parties in terms of section 26 of the Tax Administration Act, No 28 of 2011.
It is appropriate to point out that, on 29th February 2012, the Commissioner: South African Revenue Service published a Government Notice requiring reporting institutions to furnish bi-annual returns of investment and interest with effect from the 2013 year of assessment. That government notice required certain financial institutions to supply extensive information to the Commissioner: SARS. As a result of the Tax Administration Act taking effect, it was necessary for a new notice to be published specifying information to be supplied by various third parties to Commissioner: SARS.
At the time that the Tax Administration Act was being finalised, it was indicated that the legislation was being enhanced to improve the gathering of information from third parties by the Commissioner: South African Revenue Service, so as to increase the levels of tax compliance in South Africa and to assist in the further pre-population of tax returns to be submitted by individuals.
The latest notice requires financial institutions to supply details of retirement annuity contributions paid by taxpayers and for medical aid schemes to supply details of contributions made by persons in respect of the medical scheme, as well as all expenses paid for a person by a medical scheme.
These two particular requirements will assist SARS in pre-populating tax returns to be lodged by individuals. In addition, financial institutions in receipt of premiums paid for income protection policies must disclose that to the Commissioner, which should assist taxpayers in satisfying the Commissioner: SARS as to the deductibility of premiums paid on income protection policies.
The notice issued on 5th April 2013 requires the following persons to submit a return in the manner prescribed in the notice:
- banks regulated by the registrar of banks in terms of the Banks Act or the Mutual Banks Act;
- co-operative banks regulated by the Co-operative Banks Development Agency in terms of the Co-operatives Banks Act;
- the South African Post Bank Limited, regulated in terms of the South African Post Bank Limited Act;
- financial institutions regulated by the executive officer, deputy executive officer or board, as defined in the Financial Services Board Act, whether in terms of that Act or any other act;
- companies listed on the JSE and connected persons in relation to the companies that issue bonds, debentures or similar financial instruments;
- state-owned companies, as defined in section 1 of the Companies Act that issue bonds, debentures or similar financial instruments;
- organs of state, as defined in section 239 of the Constitution of the Republic of South Africa that issue bonds, debentures or similar financial instruments;
- any person, including a co-operative, as defined in section 1 of the Income Tax Act, who purchases any livestock, produce, timber, ore, mineral or previous stones from a primary producer other than on a retail basis;
- any medical scheme registered under section 24 of the Medical Schemes Act;
- any person who, for their own account, carries on the business as an estate agent, as defined in the Estate Agency Affairs Act and who pays to or receives on behalf of a third party any amount in respect of any investment, interest or the rental of property; and
- any person who, for their own account, practices as an attorney, as defined in section 1 of the Attorneys Act, and who pays to or receives on behalf of a third party any amount in respect of any investment, interest or the rental of property.
The notice then describes the nature of the information to be provided by the categories of persons specified in the notice. The Commissioner is seeking information regarding amounts paid or received in respect of or by way of any investment, rental of immovable property, interest or royalty, and transactions that are recorded in an account maintained for another person, that is, so-called transactional accounts like bank accounts.
Furthermore, those persons involved in the purchase and disposal of financial instruments for clients are required to disclose details of amounts paid in respect of the purchase and disposal of financial instruments.
Insurance companies are required to report the payment of amounts made upon the death of a person in terms of an insurance policy.
Monies paid in respect of the purchase, sale or shipment of livestock, timber, ore, mineral, precious stones or by way of a bonus, in the case of a co-operative, are required to be disclosed to the Commissioner by affected persons.
The affected third parties are required to submit the requisite IT3 form to the Commissioner, or, alternatively, a data file compiled in accordance with SARS’s business requirements specification for IT3 data submission.
The requirement to submit information to the Commissioner is onerous in that the returns specified in the notice containing all information required in respect of the period from 1 March to 31 August of each tax year must be submitted by 31 October and, in respect of the period from 1 March to the end of February, must be submitted by 31 May. This increases the administrative burden on the affected persons, and will, no doubt, require amendments to computer systems to facilitate the transfer of data electronically to the Commissioner.
It is indicated that, where the third party return comprises twenty or less detailed records, the declaration portion of the return and detailed portion of the return must be submitted electronically using the SARS e-filing platform, or manually to the SARS office closest to the person’s place of business.
For those larger organisations, and where the third party return comprises twenty-one to fifty thousand detailed records, it is necessary to submit the declaration electronically using SARS’s e-filing platform, and the detailed portion of the return must be submitted electronically, using SARS’ hypertext transfer protocol secure (https) bulk data file platform.
In the event that the third party return comprises more than fifty thousand detailed records, the declaration portion of the return must be submitted electronically using SARS’ e-filing platform, and the detailed portion of the return must be submitted electronically, using SARS’ managed data transfer platform.
The Government Notice provides that alternative arrangements may be made by affected persons as to how the information should be transferred or made available to SARS.
The Government Notice was issued so as to enable SARS to enhance third party information received by it, to ensure enhanced compliance with the tax laws of South Africa, and, also, to facilitate a greater degree of pre-populating of tax returns issued by SARS for completion by individuals.
Some commentators may seek to argue that the provision of the information called for violates the taxpayer’s right to privacy, but it must be remembered that any right contained in the Constitution is capable of limitation under section 36 of the Constitution of the Republic of South Africa, No 108 of 1996, as amended.
The request of the information set out in the notice may be construed as a violation of the right to privacy, but it is necessary for SARS to call for such information in order to comply with its obligations in administering the tax laws of South Africa, and, on this basis, the limitation of rights provision contained in section 36 of the Constitution would assist SARS should the information called for be challenged by taxpayers or affected persons.
Author: Beric Croome (ENS)