This is article 4 in a series of articles discussing the updated Tax Exemption Guide for Recreational Clubs published by SARS.
Record-keeping
All recreational clubs are required to keep records for five years from the date of submitting a return. A return includes any form, declaration, document, or other manner of submitting information to SARS that incorporates a self-assessment or is the basis on which an assessment is to be made by SARS.
Although records are generally required to be kept and retained for five years, there are circumstances in which they must be retained for longer periods.
The required retention periods for records, books of account or documents are as follows:
• Five years from the date of the submission of a return.
• If no return is submitted for a tax period but is required to be submitted, records, books of account or documents must be kept and retained indefinitely until the obligation to submit a return has been complied with, and then for five years from the date of submission of the return.
• If an objection or appeal (see 19) against an assessment or decision is lodged, the records, books of account or documents relevant to the objection or appeal must be kept and retained until the disputed assessment or decision becomes final or the applicable five-year period has elapsed, whichever is later.
• A person who has been notified of or is aware of an audit or investigation by SARS must retain the records, books of account or documents relevant to that audit or investigation until it is concluded, or the applicable five-year period has elapsed, whichever is later.
• Indefinitely if a document is relevant for future years of assessment, such as the prescribed application form for Approval of exemption from Income Tax EI1, and the required supplementary information and documentation on which the Commissioner based the decision to approve or not to approve an exemption from income tax.
The records, books of account, or documents that must be kept and retained may include anything that contains a written, sound, or pictorial record or other record of information, whether in physical or electronic form.
The following are non-exhaustive examples of records, books of account or documents that must be kept and retained:
• Cash books
• Debtors, creditors, and sales ledgers
• Journals
• Fixed-asset register
• Bank statements and deposit slips
• Invoices
To ensure the safe retention of records as well as easy and efficient access to records by SARS, especially for inspection or audit purposes during the prescribed retention period, a recreational club is required to keep and retain its records in their original form, in an orderly fashion and in a safe place. The electronic form of record-keeping is regulated by the Electronic Record-Keeping Rules. The rules require that electronic records must be kept in their original form, and should, within a reasonable time, be accessible to and readable by SARS. Other requirements deal with the location of the records, the maintenance of system documentation and measures for storage, back-ups, and conversions.
Income tax returns
The Commissioner annually gives public notice in the Government Gazette of the persons who must furnish an income tax return.
A recreational club must submit income tax returns, even if its approval or exemption results in no tax liability. No nil returns may be submitted unless they can be supported by the necessary documents, for example, bank statements, to show that there has been no activity. The income tax return enables the Commissioner to annually assess whether the recreational club is operating within the prescribed limits of its approval and to determine whether the partial taxation principles have been applied to receipts and accruals that do not qualify for exemption.
The prescribed Income Tax Return for Exempt Organisations (IT12EI) applicable to recreational clubs must be submitted on an annual basis. It may be obtained from:
• eFiling;
• Any SARS Service Centre; or
• The SARS National Service Centre.
A return must be a full and true return and be signed by the recreational club or by the recreational club’s duly authorised representative. The person signing the return will be regarded as being cognisant of the statements made in the return. Non-receipt of an income tax return does not affect the obligation to submit an income tax return.
Taxpayer reference number
A taxpayer reference number is allocated on completion of registration for income tax purposes. This reference number is in addition to the unique reference number allocated to the application for approval as a recreational club. The taxpayer reference number must be included when filing a return or any document with SARS.
Filing an income tax return
The public notice issued annually by the Commissioner also prescribes the period within which returns must be submitted for the years of assessment specified in that notice. Income tax returns must be submitted within 12 months from the date on which the financial year ends.
An appropriate penalty will be imposed by SARS if it is satisfied that the recreational club failed to comply with the obligation to submit an income tax return under the Act and public notice issued by the Commissioner. The appropriate penalty for non-compliance will be imposed according to a fixed amount penalty table.
Income tax returns must, in the case of a company, be submitted electronically by using eFiling.
SARS, however, may agree that a person who is required to submit a return may submit the return in an alternative manner by making an appointment to visit the SARS Service Centre for assistance.
Year of assessment
A recreational club that is an NPC, an association, or a society will have a year of assessment ending on the date that coincides with its financial year-end. For purposes of income tax, an association and a society are regarded as a “company”. If the financial year-end is 30 June, its year of assessment will run from 1 July to 30 June of the following year. The Commissioner has discretion to accept financial accounts of a company for a period ending on a day differing from the last day of the company’s financial year.
Supporting documentation
It is not a requirement for supporting documents to be submitted together with the income tax return. The recreational club will be notified if supporting documentation is required to substantiate any aspect of the income tax return. A recreational club whose income tax return is supported by any balance sheet, statement of assets and liabilities or account prepared by any other person may be requested to submit a certificate or statement recording:
• The extent of the examination by the preparer of the books of account and of the documents from which the books of account were prepared; and
• As far as may be ascertained by the examination, whether the entries in those books and documents disclose the true nature of any transaction, receipt, accrual or payment or debit.
The accounts must be signed by a person responsible for the recreational club in a fiduciary capacity and by the person who prepared them on behalf of the recreational club.
Financial statements
A recreational club that is an NPC may be required to be audited or independently reviewed under the Companies Act, considering, for example, the category of the company and its public interest score.
It, however, is not a requirement of SARS that a qualified accountant must complete the financial statements of a recreational club that is an association or society.
Objection and appeal
Any decision of SARS in the exercise of its discretion under section 30A is subject to objection and appeal.
The Commissioner’s discretion under section 30A will be exercised to determine whether:
• A club may be approved as a recreational club for purposes of section 30A(2);
• A recreational club is or was knowingly a party to, or knowingly allowed itself to be used as part of a tax-avoidance scheme;
• A recreational club has, in any material respect, or on a continuous or repetitive basis, failed to comply with section 30A; and
• Approval as a recreational club can be granted with retrospective effect.
A decision made by a SARS official394 or a notice to a specific person issued by SARS under a tax Act, excluding a decision given effect to in an assessment or a notice of assessment that is subject to objection and appeal, may in the discretion of a SARS official mentioned below or at the request of the relevant person, be withdrawn or amended by:
• The SARS official;
• A SARS official to whom the SARS official reports; or
• A senior SARS official.
If all the material facts were known to the SARS official at the time the decision was made, a decision or notice referred to above may not be withdrawn or amended with retrospective effect, after three years from the later of the date of:
• The written notice of that decision; or
• Assessment of the notice of assessment giving effect to the decision (if applicable).
A decision made by a SARS official or a notice to a specific person issued by SARS under a tax Act is regarded as made by a SARS official authorised to do so or duly issued by SARS, until proven to the contrary.
Any decision of SARS in the exercise of its discretion under section 30A is subject to objection and appeal. Such a decision may be objected to and appealed against in the same manner as an assessment. A recreational club aggrieved by an assessment may, before objecting, request SARS to provide reasons for the assessment to enable the recreational club to formulate an objection. The request, amongst other things, must be made in the prescribed form and manner and delivered to SARS within 30 days from the date of the assessment.
Any recreational club may object to an assessment by Chapter 9 of the TA Act, read with the “rules” as published in the Government Gazette, within 80 business days after the:
• Delivery of the notice providing reasons requested for an assessment, if applicable;
• Notice issued by SARS notifying the recreational club that the reasons requested to enable it to formulate an objection have been provided; or
• Date of assessment.
The objection must be made on the prescribed form and set out the grounds of the objection in detail, including:
• Specifying the part or specific amount of the disputed assessment objected to;
• Specifying which of the grounds of assessment are disputed; and
• Submitting the documents required to substantiate the grounds of objection that the recreational club has not previously delivered to SARS for purposes of the disputed assessment.
SARS will consider the objection and may disallow the objection, allow the objection completely, or allow the objection completely or in part. If, on disallowance of the objection, the recreational club is dissatisfied with the decision by SARS, it may appeal against the disallowance. Such an appeal must be in writing and lodged with SARS within the prescribed period.