In the 2022 Budget Speech, it was announced that the HWI Unit was taking shape, as part of the rebuilding of SARS. In addition, further proposals have been made that appear to be aimed at ensuring compliance by HNWIs. Currently, provisional taxpayers with business interests are required to declare their assets (based on their cost) and liabilities in their tax returns each year. It is proposed that to assist with the detection of non-compliance or fraud through the existence of unexplained wealth, all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns. The 2022 Budget Speech notes that this additional information will also help to determine the levels of wealth holdings and structures as recommended by the Davis Tax Committee.
Correct disclosure of asset values
It appears that this proposal gives effect to SARS’ announcement in October 2021 about expanding the reach of the HWI Unit. It is likely that all individual provisional taxpayers who end up having to declare their assets under this proposal may also be investigated by the HWI Unit. From a practical perspective, this proposal will place a greater burden on taxpayers to declare the market values of their assets correctly. Taxpayers must also keep in mind that under the Tax Administration Act 28 of 2011, it is an offence to declare false information in a return. In other words, taxpayers could face the risk of prosecution if they do not declare the correct value of their assets in an attempt to fall below the R50 million threshold and avoid detection by SARS.
Importantly, taxpayers who are required to declare certain assets at market value will not necessarily end up paying more tax as a mere increase in wealth does not necessarily mean that more tax will be paid. An increase in the value of an asset will only result in additional tax being payable if that asset is disposed of and capital gains tax becomes payable. Practically speaking, the implementation of the proposal may also allow SARS to assess whether an individual has correctly declared their income in a given year and whether their income tax liability seems correct, given the taxpayer’s level of wealth.
Another interesting announcement in the 2022 Budget Speech is the proposal to review the provisional tax system given changing circumstances and international developments and the intention to publish a discussion paper in this regard. Given the proposal for provisional taxpayers owning assets in excess of R50 million to declare specified assets and liabilities in their 2023 tax returns, it will be interesting to see whether the review of the provisional tax system will affect the impact or reach of the proposal.