South Africans who work from home or who have made two-pot withdrawals face SARS e-filing problems

South Africans receiving SARS auto-assessments who have made two-pot retirement withdrawals, work from home or earn freelance income could face unexpected tax liabilities or missed deductions.

With tax filing season now officially open, experts urged taxpayers who receive auto-assessments over the next two weeks to review them very carefully.

This is particularly important for individuals who have made withdrawals under the two-pot retirement system, as well as those who earn freelance or additional income.

According to Everest Advisory Services Chief Executive Officer Thys van Zyl, many South Africans view tax season as nothing more than an annual administrative exercise.

In reality, it provides an opportunity to conduct a comprehensive review of one’s overall financial position. “Tax season should not simply be seen as another form that needs to be completed,” he said.

“Taxpayers who receive auto-assessments should carefully review their income, deductions, medical tax credits, investment income, retirement fund contributions and any two-pot withdrawals before accepting the assessment.”

Van Zyl explained that the growing use of auto-assessments has simplified the administrative process, but it has not reduced the taxpayer’s responsibility.

“The South African Revenue Service’s (SARS) systems are far more advanced today and make use of information submitted by employers, banks, medical schemes, retirement funds and other third-party data providers.”

“However, taxpayers should view an auto-assessment as a draft assessment rather than a final tax calculation. If any information is missing or incorrect, the tax return should be amended and submitted.”

According to Van Zyl, many taxpayers mistakenly assume that an auto-assessment is always complete and error-free.

“A simpler process does not mean less responsibility. The ultimate responsibility for ensuring that all income, deductions and tax information are complete and accurate still rests with the taxpayer.”

“Take the time to review your assessment carefully. Those few extra minutes could save you significant money, time and unnecessary administration later.”

The risk for South Africans who have made two-pot withdrawals

Van Zyl said the two-pot retirement system has introduced a new tax risk that many people may not yet fully understand.

“For many taxpayers, this may be the first tax season in which the full tax implications of withdrawals from the savings component of the two-pot retirement system are reflected in their tax records.”

“The biggest misconception is that such a withdrawal is tax-free emergency funding or simply a bonus. That is not the case.”

Two-pot savings comprise multiple components. Withdrawals from the savings component form part of a person’s taxable income.

“When your annual tax assessment is calculated, your total taxable income may still be higher than expected, which could result in an additional tax liability.”

“While the two-pot system may help relieve short-term financial pressure, every withdrawal carries tax consequences and may simultaneously reduce the future compound growth of your retirement savings.”

Van Zyl said taxpayers should carefully compare their tax assessments with their own supporting documentation. They should ensure the following items are correctly reflected on their tax return:

• IRP5 and IT3 certificates,
• medical scheme contributions
• retirement fund contributions, investment income
• rental or freelance income
• any two-pot withdrawals

“Even small discrepancies can ultimately have a significant impact on your final tax assessment,” he cautioned.

“Every withdrawal, deduction and investment income item forms part of your broader financial picture. Tax season should therefore be viewed as an annual financial review rather than merely an administrative deadline.”

Van Zyl also pointed out that tax season is a popular time for criminals to target unsuspecting South Africans through scams.

“It is important to be especially cautious of phishing emails and SMS messages, and not to click on links indiscriminately.”

“Only use official SARS platforms and ensure that you are dealing with an authorised person. Remaining vigilant is essential.”