Here are the eight typical cases that call for a Capital Reconciliation

43984, 02 Oct. 2014

Tags: sars, capital reconciliation

From time to time SARS asks taxpayers for a statement of assets and liabilities and it calls this process a Capital Reconciliation.
A Capital Reconciliation determines how you use the funds at your disposal during a certain period by taking into account all your income (taxable and non-taxable) and your expenditure (deductible and non-deductible).
But, what many taxpayers don’t know are the typical cases that prompt SARS to do a Capital Reconciliation in the first place.
Knowing about these cases is crucial because it means you can get your house in order and reduce your risk of a Capital Reconciliation. Or you can get your affairs in order so you have nothing to fear when SARS asks to see statement of assets and liabilities.
The good news is we’re here to help. Take a look at the eight typical cases that call for a Capital Reconciliation.
Eight typical cases that call for a Capital Reconciliation
SARS will ask for a statement of assets and liabilities in the following instances:
  1. If you always declare a low level of income from a business that appears profitable.
  1. If you accumulate assets (residential property, luxury vehicles etc.) without an indication of any alternative legitimate source of income.
  1. There’s uncertainty about how your capital has grown or how you financed your living expenses.
  1. SARS suspects you haven’t declared all your income.
  1. SARS suspects you claimed private expenses in your financial statements.
  1. Your income decreases or you incur recurrent losses.
  1. You submit a lower estimate of your living expenses to SARS compared to any of your previous estimates.
  1. You have a history of undeclared income in previous years.
The moral of the story is you must make sure the income you declare in your tax returns justifies any growth in your net assets.
This means any increase or decrease in your net assets must match the income you declare on your tax returns. If SARS can’t reconcile this, it will see it as an “unexplained” increase or decrease and you’ll have to account for it.
So be honest with your tax affairs now that you know the cases that call for a Capital Reconciliation.

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