After spending hours pouring over your financial affairs and searching for that elusive invoice which once served as a wine coaster, there can be no greater joy than finally submitting a tax return.
If you are one of the lucky winners of a tax audit, however, the fun is only just beginning. Every year, more than one hundred thousand individual income taxpayers are audited. This could range from a routine review of information submitted on a tax return or a full-blown lifestyle audit, which SARS began conducting back in 2007.
Typically, SARS would inform you that your tax return had been identified for review as part of the income tax assessment verification process. You would then be required to submit supporting documents for all the claims on your tax return. If there was an indication that you were living a more extravagant lifestyle than reflected in your income declaration in your tax return or if there was a mismatch between what you had declared and what SARS had found, the case was referred for a lifestyle audit. These investigations started on the basis of information obtained from various sources, including the SARS anti-corruption and fraud hotline, income tax returns a taxpayer submitted to SARS, and suspicious activity reports from members of the public.
A lifestyle audit is mainly directed at salary earners with additional sources of income, high-profile individuals and sole proprietors. SARS makes use of multiple sources of information when conducting lifestyle audits, including information on assets like cars and property from third parties like banks, the vehicle registration authority and the deeds office.
Since its inception, thousands of taxpayers have been subjected to lifestyle audits. In a small percentage of these cases, the audit process identified further risks warranting criminal investigation, and some subsequently leading to hundreds of criminal prosecutions.