A new client, Mrs. Naidoo comes to your office for a consultation. She has two separate matters
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Mrs. Naidoo is a sole proprietor of a floral business, Blooming Beautiful. She specializes in unconventional and extravagant floral arrangements for weddings. She is a tax resident in South Africa. She shows you her Instagram page, which has a large following (152k followers). She mainly does weddings in the winelands in the Western Cape area and makes use of very unique and rare flowers in her floral arrangements.
In September 2021, a bride from New Delhi, India contacted Mrs. Naidoo. The bride engaged with Mrs. Naidoo to do the flowers for her wedding at Blaauwklippen wine farm in Stellenbosch which is scheduled from 4 March 2022. The wedding was a three-day Indian inspired wedding, with different flower arrangements for each day of celebrations.
Mrs. Naidoo is very proud of the wedding flowers and she shows you a photo, from her Instagram of the flower arrangements that she has made for the reception. Before the wedding, Mrs. Naidoo considered the potential of meeting potential wealthy clients. She figured that, in order to win over potential clients, she must create a professional impression. For this purpose, in February 2022, prior to the wedding, she has her teeth whitened for R4 500, she has her hair highlighted and cut for R2 000 and she purchased a brand-new outfit at a designer store in Sandston for R4 000. She claimed these expenses as deductions in her tax return for the 2022 year of assessment.
On 8 June 2023, Mrs. Naidoo is at a braai and strikes up a conversation with a stranger. She finds out that his name is Mr. Sibandu and that he works in the SARS audit team. She starts telling him about her business and how she got many new clients from an Indian wedding she did last year and that the costs she incurred to look her best at the wedding really paid off. "Luckily it was deductible for tax purposes", she says breezily. Mr. Sibandu directs that, just based on what she told him, those expenses sound like personal expenditure and if they were not expended for purposes of her trade, it would constitute non-deductible expenditures. He further points out that she could face interest and penalties due to these erroneous deductions claimed. They don't have a chance to finish the conversation as Mr. Sibandu is called away by the host to carve the lamb spit braai.
Mrs. Naidoo was concerned after the conversation with Mr. Sibandu at the braai. When she asks the host if he can share Mr. Sibandu's work email address so that she can request further advice on the matter, she finds out that he is no longer employed at SARS, he resigned the following Wednesday after the braai.
She decides to do her own research on how she can correct the matter. She sees an option on SARS' website where one can request to enter into a voluntary disclosure programme ("VDP") with SARS in terms of section 226 of the Tax Administration Act. She is, however, hesitant as to whether this is a successful option for her matter and has, therefore, booked this consultation with you.
You point out that you agree with what Mr. Sibandu had said to her at the braai regarding her expenditure being private expenditure and that she incorrectly deducted it in the relevant tax return. Mrs. Naidoo accepts this answer and asks for your professional advice regarding resolving the error.
WHAT IS REQUIRED OF YOU?
Advise Mrs. Naidoo, with reference to relevant case law and legislation, if a VDP would be a valid option, and advise her on the chances of SARS accepting her application to enter into a VDP. DO NOT DISCUSS THE DEDUCTIBILITY OF HER EXPENDITURE SHE HAD CLAIMED.