This process is not only crucial for the taxpayer, who may be struggling to keep their business afloat or support their family, but also for employers. If staff are subject to repeated or escalating ITA88 deductions, workplace morale and financial stability may deteriorate.
In this blog, we outline the key documentation SARS expects to see when assessing an ITA88 financial distress application, and why each component matters.
Detailed Statement of Assets and Liabilities
The cornerstone of any financial distress application is a complete statement of assets and liabilities. This document presents SARS with a snapshot of an individual or company’s financial health. It must include all tangible and intangible assets—such as property, vehicles, shares, and savings—as well as outstanding debts like mortgages, credit facilities, and loans.
SARS uses this information to calculate net worth and assess whether there is a realistic ability to settle the outstanding debt. If assets significantly outweigh liabilities, SARS may reject the compromise unless there is clear justification that liquidating these assets would cause further hardship.
Cash Flow Projections and Bank Statements
For both individuals and businesses, demonstrating an inability to service tax debts is essential. This is where cash flow projections and bank statements play a critical role. SARS typically expects to see bank statements for the past 6–12 months, alongside projections of income and expenses for the months ahead.
These documents should clearly illustrate limited available funds and a negative cash flow scenario, reinforcing that continued ITA88 deductions or full settlement is not financially feasible without severe consequences.
Income and Expense Reports
To further support the claim of distress, applicants must submit detailed reports outlining all sources of income and recurring expenses. For individuals, this includes salary slips, rental income, and any freelance or commission-based earnings. Expenses such as rent, utilities, school fees, transport, and insurance must be itemised to show that essential living costs already consume available income.
For businesses, this would include revenue streams, payroll commitments, and operational costs. SARS uses this data to gauge how much disposable income—if any—remains for settling debts.
Outstanding Creditor Balances and Payment Arrangements
A credible ITA88 compromise application must show the broader debt obligations of the applicant. Loan agreements, supplier credit terms, and payroll liabilities should be disclosed in full. Providing payment schedules and statements from creditors reinforces the applicant’s claim of limited capacity to make additional payments to SARS.
Demonstrating that creditors are already enforcing payment terms—or that default is imminent—can bolster the case for a reduced settlement figure.
Audited Financial Statements (For Companies)
In cases involving registered companies, SARS prefers to see audited financial statements for the past two financial years. These should be prepared in accordance with generally accepted accounting practices and provide transparency around income, expenses, liabilities, and assets.
If audited statements are not available, unaudited financials may be accepted, provided there is a credible reason and accompanying documentation. This is particularly relevant for smaller companies, startups, or businesses affected by prolonged economic downturns.
Supporting Legal or Business Rescue Documentation
Where a business is undergoing formal business rescue, or where liquidation or sequestration is being considered, supporting legal documentation is essential. This might include court orders, business rescue plans, or communications from creditors’ legal representatives.
Such documentation shows SARS that the applicant has reached a crisis point where formal recovery or closure is being considered. Including these strengthens the case that a compromise is the only viable alternative to full financial collapse.
Risk of Irrecoverability Justification
Perhaps the most critical element of the ITA88 financial distress application is demonstrating that SARS is unlikely to recover more through enforcement than it would by accepting the proposed compromise. This is known as the “risk of irrecoverability”.
Applicants must supply evidence—such as failed garnishee orders, asset valuations showing low resale value, or income figures that make repayment impossible—that shows continued collection efforts would be futile. The stronger this argument, the more likely SARS is to engage with a compromise proposal.
The Value of Expert Assistance
The ITA88 application process is document-heavy, time-sensitive, and complex. Mistakes or omissions can lead to rejected applications and ongoing financial hardship. For employees, this may result in prolonged salary deductions. For employers, unresolved ITA88 issues can negatively impact workforce wellbeing and productivity.
At DCM Corporate, we specialise in helping employers and employees navigate the intricacies of ITA88 processes. Our team can assist with preparing documentation, negotiating with SARS, and restoring financial stability.
Contact us today to find out how we can support your team in managing ITA88 deductions and financial distress claims effectively.