RSM South Africa

Tax debt compromise - the last resort

We live in hard times. Economic downturns, rising inflation, unemployment rates and the tightening of purse strings by companies all increase the financial stresses that are synonymous with our times.

Consequently, some taxpayers genuinely cannot settle their tax debts without facing financial ruin. This could be due to incorrect deductions of PAYE by their employer, realising that an annuity was taxable only after year end or financial hardship due to sudden unemployment.

The South African Revenue Service does have a structure in place for such individuals or companies.

That being said, it is by no means a simple process to undergo a tax debt compromise and should only be undertaken as a last resort.

The disclosures required by the debtor or taxpayer are onerous, and include but are not limited to:

  • A fair market value statement of assets and liabilities
  • Amounts received by and the expenditure incurred by the taxpayer in the preceding 12 months
  • Assets sold or disposed of in the previous three years (including their value, amount received, who received the asset and whether any relationship exists between the purchaser and the taxpayer)
  • The taxpayer’s future interests in any assets
  • The assets over which the taxpayer has power of appointment or disposal, directly or indirectly
  • Details of the taxpayer’s connected persons
  • Present sources and levels of income and anticipated income for the next three years
  • Outline of financial plans for the future; and
  • Reasons for seeking a compromise

The above required information must be outlined along with supporting documentation within a Collection Information Statement, a 12 page document to be submitted to SARS after the taxpayer has had the initial appointment with SARS in which an intention to submit a request to compromise a tax debt was made clear.

The compromise of a tax debt is set out within section 200 to 207 of the Tax Administration Act No. 28 of 2011 and the full procedure and all considerations to take into account are lengthy, time consuming and not necessarily simple in nature. A taxpayer should consider obtaining the assistance of a Tax Practitioner before undergoing a tax debt compromise.

Liezl Laughton

Supervisor: Corporate Tax, Johannesburg    

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