Tax debt compromise basics: Follow these five steps to work out the settlement you should offer SARS
43984, 18 Sep. 2014
If your company is in financial distress, a tax debt compromise could be your lifeline. It’s basically a request to SARS asking it to “park” any outstanding tax debt and not demand payment.
But, only in a few cases of severe financial distress will SARS ever consider parking your tax debt in full. This means when you apply for a tax debt compromise, you must work out a settlement amount you’ll offer SARS.
SARS will then review the settlement amount and if it’s convinced the amount is the highest net return it can hope to get for the tax debt, it will probably accept it.
So how do you work out the settlement amount?
Follow these five steps…
Calculate your settlement amount for a tax debt compromise in five easy steps
Step #1: Get a cash value of all the assets you can sell off in a reasonable timeframe (one to six months).
Make sure you choose assets that won’t result in you being unable to earn taxable income in future. For example, if you manufacture clothing and need sewing machines to create your stock, selling these off could result in you not being able to run your business at all.
Step #2: Deduct all your debts and liabilities. This must exclude your tax debt and any debts owing to owners.
Step #3: Deduct the amount you or your business needs to survive over the short-term (working capital).
Step #4: Add any amount of money you can get, with certainty, from anyone else (i.e. a family or a bank or mortgage).
Step #5: The value that’s left is the absolute maximum you can offer as a settlement amount.
When you determine the settlement, base it on facts you can prove! Don’t just guess the amount and hope for the best, SARS won’t have that.
Following these five steps will help you work out the best settlement amount you can offer SARS when applying for a tax debt compromise.
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