ASSSETS AND LIABILITIES Contents 1. IT12 STATEMENT OF ASSETS... 2 1.1 HOW STATEMENT OF ASSETS WORK... 2 1.2 Capital Reconciliation... 3 1.3 ACQUISITION AND SALE OF ASSETS... 5 1.4 Sale of Assets... 8 1.5 Capital Reconciliation... 8 1.6 WHERE THERE ARE A LARGE NUMBER OF ASSETS LIKE SHARE PORTFOLIO... 10 1.7 WHERE ASSETS DO NOT TIE UP... 11
1. IT12 STATEMENT OF ASSETS 1.1 HOW STATEMENT OF ASSETS WORK Statements of Assets and Liabilities are extremely critical in the production of tax returns especially in so far as high net worth taxpayers are concerned. It is necessary to make sure that with each tax return submission that assets and liabilities have been correctly accounted for if the statement of assets and liabilities are necessary. The asset and liability details for a taxpayer may be accessed from within the tax calculation screen or from the menu options. The assets and liabilities of Tax Advisor are contained in a self-contained Asset and liability file. The important thing is that you only need to enter an asset once, providing you insert the correct acquisition and sale dates. These assets will apply across all tax years. So if you are looking at a statement of assets for the 2009 year it will reflect the assets that the taxpayer holds at the last day of the tax year and if you then switch to the next year 2010 it will reflect the assets that the taxpayer held on the last day of 2010. It is important that from year to year you get the movements right so that if there is a movement in a cash balance you indicate the change in that cash balance and the system will take care of the schedule of assets at the year end. It is certainly in the interest of taxpayers if practitioners take their time over statements of assets and capital recons and get them right as this is a wonderful risk aversion feature.
The screen above reflects a listing of the displayed taxpayers assets and liabilities for the year reflected on top. To manipulate the assets click on the double arrow bar on the right hand side of the screen. 1.2 Capital Reconciliation The capital reconciliation screen reflects the movement in capital between any two years and calculates living expenses for the tax year that is displayed on the screen. All provisional taxpayers, directors of companies and members of close corporation are obliged to submit a statement of asset and liabilities for each year that a tax return is submitted. By performing the capital account reconciliation SARS can evaluate whether all the income that a taxpayer has earned has been properly declared. By entering the details of assets and liabilities properly in Tax Advisor you can pre-empt what SARS is doing by by ensuring that your capital account reconciliation reconciles properly and that the living expenses are reasonable for the circumstances of the individual taxpayer. On the main tab of Tax Advisor after you have entered the calculation there are two tabs that are concerned with assets and liabilities as depicted in the screen below. These are statement of assets and capital reconciliations. By clicking on the statement of assets tab you will get a summary of the assets and liabilities with the totals and the summary indicates the difference between local and foreign assets and liabilities. See screen above. The capital reconciliation looks likes this.
When you set up an asset for the first time click on the type and here you get a categorization of all the assets that are summarized on the front. Example, if you click on the type down arrow you will see that fixed property has a code A010, and you would want to enter say 10 fixed properties into a particular taxpayer s statement of assets you would give each property a unique item reference for example you could give a code as A0101 for the first one A0102 for the second one until you have created all the screens for fixed property. However once you look at the front screen under the statement of assets tab, it will consolidate all those fixed properties and show as one fixed asset line in the main grid. It is very important that you understand this concept. When populating the statements of assets on the tax return the consolidated figures in the total are what gets posted to the efiling return under each asset category as SARS has defined.
Another extremely important concept is the date of acquisition and the date of sale and the dates of changes in the asset class, because you only have to enter the asset once. When looking at each individual year the system will automatically allocate the asset to the right year based on the dates that you have entered as an acquisition and the dates you have entered as a sale. Example if you have sold a fixed property in the 2006 year and you have entered the date correctly this will not appear in the cost of assets for the 2007 year. Another example is if you add say alterations to a fixed property in the 2008 year and this occurred in March and you date it correctly the balance at 2007 and 2008 will be different by the movements indicated on the movement screen. You will also notice on the statement of assets screen that there a little checkbox. Are you a director of a company / member of close corporation, and if you tick this, this is for tax return purposes and this will force a statement of assets and liabilities. 1.3 ACQUISITION AND SALE OF ASSETS In order to insert a new asset click on the bar on the right hand side of the grid on the asset summary screen above and the following screen will display.
In order to see all the assets linked to that client, tick on the search tab and you will get a full list of the assets as indicated on the screen below. If you wish to work on a particular asset, click on the asset on the search screen, and then click on details and that asset will display. In order to create a new asset, click on the new button, the code automatically appears. Now you need to give it an item reference. This is like a code for the asset. It would be a good idea for your firm to have standard codes. We would suggest that we stick to the codes that were originally created by SARS with the different classes. The asset codes are listed below.
Fixed property Shares, members interest and dimensions Listed Shares Loan Account/Asset Nett Capital of Business or Professional Farming Equipment, Machinery and Implements Motor vehicles, Caravans and boats Debtors Stock Live Stock/Elected value Cash in Bank and other institutions Cash on Hand Furniture A010 A020 A021 A030 A040 A050 A060 A070 A080 A090 A100 A110 A120 Personal Effects for example, jewellery, paintings and furniture A130 Other Assets Bonds Loan Accounts/liabilities Creditors Bank Overdraft Other Liabilities A999 L101 L020 L030 L040 L999 When entering a new asset ensure that you are entering an item reference, give it a reasonable description, for example a description that you would want to see on the schedule, indicate whether it is local or foreign, indicate the date acquired, the date is very important for the purpose of the statement of assets cost. Insert the cost here. In the middle of the screen you have got adjustments, by clicking on the bar on the right hand side you can indicate movements to loan account or additions to a property that happened after the date acquired. Now the date acquired for this purposes is extremely important as this may take place in a different tax year. If you click on the notes tab you will have a place to indicate free form notes as to what happened with the asset.
Typically in the case of loan accounts or capital accounts one basically has from year-to-year the same asset but there are movements and it is a good idea to reflect these movements as a positive or negative figure in order to get the balance correct at the year end. In the event that you make an error with a date, i.e. you put in the wrong year it is a simple matter to go and correct the date. Once you have done this, there is a refresh button on the main grid, click on it to refresh the balances on the screen. There are a couple of new fields that need to be entered. These are primary residence held, held in partnership owned solely by the taxpayer and if it is their main house, you would click primary residence. Even if it is a private residence and held jointly say husband and wife you can tick it as held jointly or if it is held in partnership you can tick that one as well and then enter the partnership %. Make sure that you tick the correct items. 1.4 Sale of Assets You will note at the bottom of each asset screen there is a place for indicating the proceeds of sale, profit and loss and the date sold. This is of primary importance for calculating the correct capital reconciliation. In the case of calculating the correct CGT value it is imperative that you enter the correct base cost which may be different to the accounting cost, the date of sale and the CGT value on the right hand side and this will be carried forward to the tax calculation making the correct capital gains calculation. You will note that there is a check box with the words primary residence, as the tax calculation is different for primary residence make sure that you tick this in the case of a primary residence. 1.5 Capital Reconciliation If you click on the capital recon tab, the following screen will display
The screen is basically divided into four sections. The first section top left hand side, takes the taxable income and converts it into an accounting income for the purposes of doing the capital reconciliation. This it does by adjusting those expenses that were not claimable for tax as well as tax payments. There is also a space for other amounts, in the case that there are any other movements that you feel should be taken into account to correctly reflect the right capital reconciliation. On the bottom of the screen you will have a summary of assets summarized into the categories of local and foreign. On the top right hand side you will have the movements of assets from one year to the next and it is important that the net assets at the end should agree with the total net assets as displayed at the bottom left hand side. This part of the screen will also show movements on assets where you have adjusted the values for a particular year, assets acquired, assets disposed and there is a place for other, which may be an adjustment that you need to make. On the bottom right hand side you will have the calculation of living expenses which is basically the net income calculated from an accounting point of view and an adjustment for any asset movements, and at the bottom we will show the living expenses, the amount of money that was consumed by the taxpayer in order to live. This is calculated on an annual and a monthly basis. For the purposes of convenience we display a printout of a capital reconciliation screen.
Example of capital gains The effect of a capital gain calc will display in the income box as follows. 1.6 WHERE THERE ARE A LARGE NUMBER OF ASSETS LIKE SHARE PORTFOLIO Where a taxpayer has a large number of assets say shares and you have entered the totals in one year and you actually keep a record of those shares say in an Excel spreadsheet. The taxpayer then sells a portion. The question is how do you handle this in the tax advisor asset sections. The best way to do it would be to create another asset account under the same type, shares or property or whatever it is, then transfer the cost of those assets by entering into the movement area a minus amount, for example if you had a R1m rand worth of share cost and R200,000 of that cost was sold then create a movement of R200,000 and open up a new share account with an acquisition cost of R200,000. make sure the movement date and acquisition dates are the same.
Then sell the new asset making sure you put in the correct date of sale and the proceeds of sales. It is important that at the end of that particular tax year that the original cost of the share or property portfolio shows that it is R800,000 and the R200,000 that you have transferred to annuity account does not show on the assets at all because the R200,000 cost of assets were sold. 1.7 WHERE ASSETS DO NOT TIE UP The important thing to note that where you are having difficulties reconciling the assets you must check the acquisition and the sale dates and you will probably find this is where you have gone wrong.