Many people are under the impression that SARS gets special treatment as a creditor because, well, because SARS is SARS.
(For Afrikaans version please go here: SARS AS ‘N KREDITEUR VAN INDIVIDUE EN BESIGHEDE)
It is not true.
SARS is a normal creditor like any other creditor. In an insolvency (sequestration/bankruptcy) SARS only gets paid after any preferential creditor (any creditor with a bond or lien) gets paid. In fact, SARS only gets paid after the curator’s fees and, if any at that stage, attorneys fees are paid. Any monies that SARS does not get paid, gets written off.
When the debtor is a Company, Close Corporation or Trust (hereinafter referred to as “the entity”), SARS is a very important creditor to take note of. If the entity cannot pay its SARS debt and does not liquidate itself, the liability for the SARS debt goes over to the directors of the Company/the members of the Close Corporation/the Trustees of the Trust.
It is an exception to the rule that any debt that a director or member or trustee or Trust did not sign any surety for, does not go over to that director or member or trustee. With SARS as the creditor of that entity where the debt is not paid, the SARS debt outomatically goes over to the director or member or trustee. The only way to avoid this liability being transferred to such individual(s), is to liquidate the entity. If there is a liquidation, the SARS debt dissolves in the liquidation and no liability goes over to the individual(s).
If the entity does not liquidate and the liability goes over to the relevant person (director/member/trustee), then SARS can, like any other creditor also issue summons, obtain judgment and attach moveable assets and obtain a garnishee order. What is a problem though which is different from other creditors, is that, because SARS is SARS and the Income Tax Act is written in such a way: once the liability of a debt of a Company or Close Corporation or Trust has gone over to a director/member/trustee, SARS will also be able to take criminal steps against such a person. The same applies for where the debtor is an individual person who was not a director/member/trustee.
SARS seldom takes criminal action against the “man in the street” as they are, most probably, aware that if the person is locked up they will not be able to pay the debt and SARS rather tries to collect the debt.
There are also special arrangements that can be made with SARS to pay the debt off – like a Section 91 settlement. You can read more about such settlements on the SARS website.
The key to remember is this: SARS does not hold magical powers because they are SARS, but, SARS has the ability to take criminal steps that other creditors don’t. Make arrangements with SARS like you would with any other creditor. Sometimes people choose to ignore creditors and hope they go away, but I would not recommend that with SARS. Even if you can’t pay, talk to them. Depending on who handles your file: that person can make life miserable for you if you don’t treat him/her right.
If you have a business and you want to stop running it, be sure to hand in the last tax return on your last day of trading, even if it is a sero return. If your tax is in arrears, catch it up and hand it in to SARS, even if you are going to pay penalties and interest.
This is not an advertisement for SARS nor are we agents for SARS, but out of experience we are aware of people’s fear of SARS. The result is normally that people think they are going to go to jail, or that SARS is unreasonable. They are not and they will try and help you, because to SARS it is more important to collect the money than to run the individual down. Therefore, immediately bring arrear tax returns up to date if yours aren’t.
Also what deserves a mention is that the type of monies owing to SARS does not matter: whether it is VAT, or PAYE or income tax, SARS does not necessarily take legal action.
Although we cannot speak for SARS and do not propose to predict what they are going to do in the future, but in our experience thus far SARS has never criminally prosecuted any of our clients. In an insolvency (sequestration/liquidation/bankruptcy) application, thus far and the many applications that we brought, SARS simply writes the debt off and does not even prove a claim against the insolvent estate.
See also from SARS website: Owing SARS Money
We trust that this article will help you to loose some fear of SARS as a creditor.
Cell: 072 8558 106