Two simple questions that I can't find answers to anywhere:
1. What happens if you cannot support expenses for a specific category on a tax audit for year that has already passed and been assessed (say audited for 2010/11 in 2013)? I.e. you lost an expenses file for the full 5 year tax period, and only have partial records via bank statements?
2. How likely is this scenario - i.e. SARS randomly auditing for previous tax years. I.e. during the 2013-14 tax year are you at risk of being randomly audited for the 2011-12 tax year?
These seem like two extremely important questions, because people must lose proof of deductions from time to time. Also nobody seems to be able to substantiate when an in-depth audit takes place (i.e. audits going back beyond the previous tax year being assessed).
Thirdly, and if you don't mind, if you don't have some records what is the correct way to rectify the situation? Should this be reported to SARS or if the tax year is closed should you just be relieved and make sure your other records remain up to date?
While we never encourage anyone to be dishonest with SARS or hold information back there are times where it is better to accept the situation rather than to open yourself up to further complications as in the case of a missing file. Usually when you cannot support a claim you have made it is best to request a correction of your return and remove those amounts. SARS now has the power to go back 5 years and audit whenever they wish to. IF they find you have claimed deductions or expenses without proof or in error they can penalise you very heavily. Where there is a genuine mistake they are, only now, taking that into consideration.
To answer your questions, if you have submitted and been assessed in prior years it is unlikely that SARS will reopen their assessment and audit you for frivolous reasons unless they suspect something to have been incorrect or they were mislead, so you shouldn't be concerned about that. If it does happen, the best would be to notify them immediately that you have lost the file and ask what can be done about it, putting the ball in their court. The worst case is they disallow the deductions and tax you accordingly and penalize you for, "not taking due care" which can result in penalties up to 200% of the taxable difference unfortunately. Best case is they accept your reasoning and move on.
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