The 5 most common tax mistakes that lead to SARS understatement penalties

1. Undeclared or incorrectly declared income

One of the main drivers of SARS understatement penalties is the non-declaration or incorrect declaration of income, particularly where multiple entities, offshore assets, or trusts are involved.

With SARS receiving automatic data from foreign banks and global tax authorities, income mismatches are quickly detected.

Prevention: Centralise income reporting and engage Tax Professionals to verify that all local and offshore income streams are fully and correctly declared.

2. Reliance on outdated or incorrect tax advice

Tax laws evolve constantly. Advice that was compliant years ago may now expose taxpayers to SARS understatement penalties - especially for long-standing trust structures, offshore companies, and group arrangements.

HNWIs often inherit legacy structures, unaware that circumstances have changed.

Prevention: Conduct periodic reviews of all structures with modern Tax Professionals who specialise in high-value portfolios.

3. Poor documentation for transactions and deductions

SARS requires documentation that clearly substantiates each tax position. Missing, incomplete, or unclear records often lead to SARS understatement penalties, especially during audits.

Corporates are particularly vulnerable where internal controls or documentation standards are inconsistent.

Prevention: Maintain audit-ready documentation for all significant transactions and ensure internal policies align with SARS requirements.

4. Transfer pricing and cross-border transaction errors

Cross-border transactions are complex and tightly monitored. Even minor transfer pricing errors can lead to substantial SARS understatement penalties.

SARS views these errors as high-risk indicators of intentional misstatement.

Prevention: Maintain up-to-date transfer pricing documentation and ensure cross-border policies meet global best-practice standards.

5. Lifestyle mismatches and high-value asset purchases

SARS routinely compares declared income with lifestyle indicators. Where HNWIs acquire high-value assets - such as luxury vehicles, property, international assets, or art - without corresponding taxable income, SARS assumes nondisclosure and may lead to SARS understatement penalties.

This appears to be a fast-growing audit trigger in South Africa.

Prevention: Ensure asset purchases, loans, and wealth movements are traceable to declared income streams.

How Tax Professionals help prevent SARS understatement penalties

Specialist Tax Professionals play a crucial role in reducing exposure by identifying hidden tax risks across structures and transactions, ensuring that both offshore and local income streams are fully compliant, preparing audit-ready documentation, reviewing trusts, companies, and cross-border arrangements, correcting errors before SARS detects them, and guiding taxpayers through the Voluntary Disclosure Programme (VDP) to minimise penalties where issues have already arisen. For high-value taxpayers, proactive oversight protects wealth and safeguards future compliance.

Conclusion: Prevention is better than penalties

Avoiding SARS understatement penalties is not just about submitting accurate returns - it requires ongoing monitoring of wealth structures, cross-border activities, corporate transactions, and reporting obligations. For HNWIs and corporates, proactive oversight is the most effective way to prevent costly penalties and protect long-term financial stability.

With the support of experienced Tax Professionals, like Unicus Tax Specialists SA, taxpayers can ensure compliance, reduce exposure, and confidently navigate the evolving SARS enforcement landscape.

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