As a general rule, taxpayers must retain their tax returns and relevant supporting documents for five years after the date on which they submitted their returns. However, there are many exceptions to this rule and contradictory statutory provisions that may convince a taxpayer to retain the relevant records indefinitely, if possible.
The general rule, which is found in Section 29(3) of the Tax Administration Act (TAA), states that records, books of account or documents do not deed to be retained by a person for more than 5 years after the date on which the relevant tax return was submitted. However, one exception to this general rule provides that if a taxpayer is supposed to file a return and does not, the 5 year rule does not apply and the taxpayer is required to keep the relevant documents indefinitely.
3 instances when discarding your supporting documents after 5 years can be dangerous
Let’s take a look at 3 instances when such exceptions come into play and you would have to keep your supporting documents for a longer period.
1. SARS FORGETS THAT YOU HAVE SUBMITTED A RETURN
As unlikely as this might sound, there have been nightmare scenarios where taxpayers have submitted returns, but SARS has no record of either the return or the assessment. If the taxpayer is unable to provide proof that the return was submitted, SARS may argue that the general 5 year retention rule does not apply and the taxpayer should have kept the relevant documents indefinitely.
2. IN THE EVENT OF AN AUDIT OR DISPUTE
A further exception to the general rule is Section 32 of the TAA which notes that taxpayers must retain records, books of account or documents relevant to an audit or investigation or dispute until the audit is concluded, the dispute is resolved or the assessment or decision is final.
3. WHEN SPECIAL DISCLOSURES CREATE SPECIAL PROBLEMS
Practically, there are also compelling reasons to retain documents for as long as possible. In most tax disputes with SARS, the onus is on the taxpayer to produce relevant material to support their cases. Furthermore, in the context of SARS’ Voluntary Disclosure Program, taxpayers who file amended returns are likely to face a further audit by SARS for the tax periods which they are seeking to regularize. This can be problematic when the period of disclosure is more than 5 years.
This could result to the dis-allowance of deductions which were previously uncontested, such as medical expenses, general trading expenditure or interest charges, in the case where supporting documents cannot be provided.
Despite the general retention period of 5 years under the AAT, the risk of relying on this rule appear to be too great. We recommend that taxpayers consider retaining their returns and supporting documentation for as long as possible. We recommend that you retain your original documents for 5 years and thereafter you can keep copies of the relevant documentation in the cloud or by scanning the documents onto a DVD or hard-drive.
Source: Kyle Fyfe, Tax Talk Magazine
Please note that the information provided in this article is based on generic scenarios and should not be taken as tax or financial advice. The circumstances of each individual and employer are different, requiring tailored advice and, where required, customized financial planning. Please contact us should you need any advice on this topic.