By Pieter van Heerden – Director: Ascendant Financial Services
What is a lifestyle audit?
A lifestyle audit is a review process conducted by SARS of a person’s financial information to determine if the person’s lifestyle corresponds with his/her known sources of income. It therefore aims to achieve one broad objective: to establish whether a person is living above his or her legal means.
A lifestyle audit from SARS can be a nerve-wracking experience if you are suddenly subjected to a “lifestyle audit”. You run the risk of penalties, backdated interest and even criminal prosecution. SARS can refer you to the National Prosecuting Authority (NPA) for investigation.
These audits are conducted when SARS suspects that you as taxpayer are not declaring all your income and are in actual fact underpaying your tax due.
Rather than covering up any incorrect information or hiding the fact that you were not declaring all your income and are underpaying tax due to SARS, Ascendant Financial Services advises clients to consult with tax experts like ourselves. We will be able to assist you with any tax related issues.
The following may answer your questions about lifestyle audits:
Does SARS have any direct access to third-party resources?
The answer is yes, SARS can access data from various sources:
- Your banking institution;
- The Deeds Office for any property transactions;
- Financial institutions for mortgage loans or vehicle finance;
- Vehicle registrations;
- Social and other media where your lifestyle can be ascertained;
- Jealous neighbours or “friends”, an ex-husband or ex-wife give SARS a tip-off;
- Companies and Intellectual Property Commission (CIPC);
- Income tax returns.
What should you do when you are selected for a lifestyle audit?
- Provide all details of your monthly living expenses, including your bond or rent payments, groceries, entertainment, vehicle expenses, any contributions to a retirement annuity, DStv, telephone bills and even your holiday expenses.
- These costs will be reconciled to your bank statements.
- Provide details of any additional income e.g., rental income or any interest that you receive from an investment account.
- These additional incomes can also very easily be reconciled back to your bank statements.
- While doing this lifestyle audit, SARS can request information dating back five years.
- SARS can levy taxes on any amounts if you are unable to justify income or expenditure, so keep all records.
How does SARS select people for a lifestyle audit?
SARS does not disclose the criteria being used to probe your tax affairs, but if you are selected, our advice is to complete the “lifestyle questionnaire” that you will receive from SARS.
If you have been under-declaring your income, or cannot justify your expenses that you have claimed, SARS can issue additional assessments for these amounts. Also bear in mind, SARS can issue you with penalties of up to 200% plus interest.
Also take note of the following: A lifestyle audit should be approached with caution. There may be a reasonable explanation for someone’s excessive lifestyle, such as an inheritance, winnings, or financial support from a wealthy family member or friend.
In Closing, Ascendant Financial Services advises that clients keep accurate records of their expenses and not hesitate to consult with a tax expert before submitting information to SARS.
References:
McIntyre-Louw, J. and De Villiers, E. (2022) ‘Lifestyle Audits’ Tax Talk, 80(2), pp. 12-15. Available at: https://hdl.handle.net/10520/EJC-1ed8a43abc (Accessed: 1 August 2023).
Pillay, V. (2022) ‘Have you heard about the SARS lifestyle audit? This is what you can expect”, IOL. Available at: https://www.iol.co.za/business-report/budget/have-you-heard-about-the-sars-lifestyle-audit-this-is-what-you-can-expect-0f355e22-c2e7-4aee-a388-e8c29d68238f (Accessed: 1 August 2023)
