Tax lessons we learnt in 2024

2024 saw some significant changes in the tax regime, especially with the introduction of the so-called two-pot retirement fund system and growth in the use of crypto currencies.

In addition, the South African Revenue Service (SARS) is taking advantage of artificial intelligence (AI) to ensure that no one can hide.

Here are some key takeaways about what you need to know about tax:

The two-pot system and unexpected tax deductions

The introduction of the two-pot retirement system brought significant changes to how retirement savings can be accessed, but there was also a tax twist in the tale.

“While the system is designed to balance liquidity and long-term financial stability, many people have faced challenges in managing their expectations around taxation,” Wayne Mostert, managing director of ASI Wealth, says.

A common misunderstanding has been about the taxable nature of withdrawals from the “accessible pot”, Mostert says. “Many assumed they would receive the full amount requested, only to find that the withdrawals were subject to tax at their marginal tax rates. This led to deductions that left them with less than they anticipated,” he adds.

In addition, taxpayers who withdraw from their savings pot under the new system will only be paid after settling any outstanding tax debt, unless payment arrangements have been made with SARS.

“Taxpayers need to know how their two-pot withdrawals are treated in relation to their tax debt to avoid being caught off guard,” Thomas Lobban, director at Ibex Consulting, a division of the Latita Africa group, says.

Where taxpayers have arranged with SARS to pay off or defer the debt, withdrawals from the savings pot will not be affected by this debt. Only the withdrawal amount itself will be taxed, Lobban adds.

“This makes a debt arrangement with SARS highly desirable, it not only reduces the financial pressure on the taxpayer but also protects their emergency funds from being seized,” Lobban says.

Increased use of technology to enforce tax compliance

SARS stepped up its use of technology in 2024, making it harder for taxpayers to avoid their obligations.

“By leveraging advanced data analytics, integrating third-party data, and improving the eFiling platform, SARS has significantly improved its ability to cross-check information provided by taxpayers with data from banks, employers, and other institutions,” Mostert explains.

"SARS isn’t just using AI to become more automated or efficient, but to crack open the private financial affairs of taxpayers with startling efficiency," Lobban says.

One notable advancement Mostert points to is the automation of compliance checks, allowing SARS to identify discrepancies in tax returns more quickly.

“For instance, taxpayers who underreport income or fail to declare additional revenue streams, such as freelance work, are now being flagged much sooner,” he says.

The taxman has also been proactive in sending notifications and reminders, leaving less room for excuses when returns are late or incomplete, Mostert says. “While these changes have improved compliance rates, they also require individuals to keep accurate records and seek professional advice if needed.”

There are also benefits for the taxpayer because of the increased use of technology, Michael Rushby, managing director of tax at audit firm Galbraith Rushby, says.

1.  Streamlined filing process

AI-driven systems can now pre-populate tax returns with information from various sources, such as employers, banks and other financial institutions. This reduces the administrative burden on taxpayers, minimizes errors and saves time. AI systems cross-check the information for precision ensuring all necessary data is correctly filled in, reducing the chances of discrepancies.

2.  Personalised taxpayer assistance

SARS has introduced AI-powered chatbots and virtual assistants to provide real-time support to taxpayers. These AI tools are available 24/7 to answer queries, guide users through the filing process and provide information on tax laws and regulations. By offering personalised assistance, SARS aims to make the tax filing process less daunting, especially for first-time filers and those with complex tax situations. The virtual assistants also provide updates on the status of tax returns and refunds, keeping taxpayers informed.

3.  Improved data analytics

AI enhancements have significantly improved SARS's ability to analyse and use data. By employing advanced analytics, SARS can better understand taxpayer behaviour, identify trends and make data-driven decisions. This capability allows SARS to optimise its resources and focus on areas that require attention and improve overall service delivery. For example, AI can help identify sectors or regions with higher incidences of non-compliance, enabling targeted interventions and educational campaigns.

Declaring cryptocurrency transactions for tax purposes

With cryptocurrencies becoming increasingly mainstream, SARS has intensified its focus on regulating this area, Mostert says.

“Taxpayers are now required to declare all cryptocurrency transactions, whether for trading, investment, or payments, as these are considered taxable events,” he says.

Rushby adds that “SARS estimates that over 5.8 million South Africans currently hold crypto assets, yet many have not included these in their tax filings”. To address this, SARS is working closely with the Financial Sector Conduct Authority to obtain data from registered crypto asset service providers and is already receiving information from local exchanges, he adds.

A key issue is that many South Africans are unaware that profits or losses from cryptocurrency dealings must be reported, either as capital gains or revenue, depending on the purpose and frequency of transactions, Mostert explains.

“It is the taxpayer’s responsibility to keep detailed records of all transactions, including purchase prices, sale prices, and any related expenses. Non-compliance can lead to severe penalties and backdated interest,” he says.

SARS has also begun working with international tax authorities to track offshore cryptocurrency holdings, closing potential loopholes for evasion, Mostert says.

Christo de Wit, Luno South Africa’s country manager, says that SARS has different rules for different types of crypto asset users, which depend on several different factors, including if you are considered a crypto asset “investor” or “trader” as well as other details relating to your income:

• Traders are typically required to pay income tax on revenue earned. 
  
  
• Investors will pay capital gains tax on taxable gains.

“It is possible for a single taxpayer to be classified as both a trader and an investor. Broadly speaking, the bracket you fall into will depend on your personal circumstances and the types of activity that you have engaged in,” De Wit says.

“These developments mean individuals must treat cryptocurrencies with the same level of care as any other asset class, ensuring they comply with tax laws and seek professional advice when needed,” Mostert adds.