Guide · SARS tax debt

SARS tax compromise: who qualifies and how the application works.

A tax compromise lets a taxpayer settle a SARS debt for less than the full amount. It is real, it is in the Tax Administration Act, and it is refused far more often than it is granted, almost always because the application was incomplete or the taxpayer wasn't compliant in some other way. Here is how it works, who it's for, and what a successful application looks like.

Written by the tax practitioners at Accounting Connect. General information, not advice; see our terms.

What a compromise actually is

Under sections 200 to 205 of the Tax Administration Act, a senior SARS official may compromise a portion of a tax debt where doing so will secure the highest net return from the recovery of the debt, and is consistent with considerations of good management of the tax system and administrative efficiency. In plain terms: SARS agrees to accept less than you owe, now or on agreed terms, because it is satisfied it would recover less by pursuing you for the full amount.

A compromise is not a payment arrangement (that is section 167, where you pay the full debt in instalments) and it is not penalty remission (where penalties are reduced but the tax stays). It is a reduction of the debt itself, including tax, penalties and interest, recorded in a written agreement with SARS.

Who qualifies

The Act does not set an income threshold or a formula. SARS looks at whether the taxpayer can realistically pay the full debt, now or in the foreseeable future, from income and assets. A compromise case usually has most of these features:

  • The debt is substantially more than the taxpayer's realisable assets and reasonable future income can cover.
  • The taxpayer's returns are all filed and up to date. SARS will not compromise a debt while there are outstanding returns, which is why a catch-up always comes first.
  • Full and honest disclosure of the taxpayer's financial position, and, for a company, usually that of the directors or shareholders as well.
  • The taxpayer has not had a compromise in the previous three years and did not create the position through fraud or dishonesty.
  • Where the taxpayer is a company, the compromise would not unfairly favour the taxpayer's other creditors over SARS.
When SARS will usually refuse: outstanding returns; a previous compromise within three years; assets disposed of to connected persons before applying; the debt arising from a dispute still under objection or appeal; or a disclosure that does not add up against bank statements and asset registers.

What goes into the application

The application is a written request to SARS that must include, at minimum, a full statement of the taxpayer's assets and liabilities at market value, the taxpayer's income and expenditure, a schedule of all tax debts, the reasons the taxpayer cannot pay in full, the amount the taxpayer offers and how it will be funded, and any other information SARS requires. For a company we include the same for each director and significant shareholder, because SARS will ask.

The quality of this document decides the outcome. A one-page letter saying "we can't afford it" is refused. A properly prepared disclosure with reconciled bank statements, valuations, a cash-flow forecast and a realistic offer, submitted by a registered tax practitioner who has done this before, is taken seriously.

The process, step by step

  1. Get compliant first. Every outstanding return is filed and every registration is correct. If you are years behind, this is the catch-up, and it determines the real size of the debt; estimated assessments are often far higher than the true liability.
  2. Reduce the debt before compromising it. Penalty remission requests, voluntary disclosure relief and corrected assessments can cut the debt substantially. SARS will not compromise what should have been corrected.
  3. Prepare the financial disclosure. Personal and business assets and liabilities, income and expenses, with supporting documents.
  4. Decide the offer. A lump sum funded from a specific source generally carries more weight than a long instalment plan.
  5. Submit the application to the SARS debt management division through the correct channel for the taxpayer type, and respond to every SARS query promptly.
  6. The written agreement. If SARS accepts, the compromise is recorded in writing with conditions. Meet every condition; a breach, or a later discovery that the disclosure was incomplete, voids the compromise and the full debt returns.

How long it takes

Be realistic: SARS's debt management division works through a backlog, and from a complete application a decision commonly takes several months, longer where the matter is complex or SARS asks for more. Add the time to become compliant beforehand. A realistic end-to-end timeline for someone years behind is six months or more, and nobody should promise you faster.

Alternatives SARS may prefer

If the taxpayer can pay the full debt over time, SARS will usually offer an instalment payment arrangement rather than a compromise. If the problem is penalties rather than tax, a remission request is the right route. Part of our assessment is telling you which of the three applies to you before any application is made.

Common mistakes

  • Applying with returns still outstanding.
  • Moving assets to a spouse, a trust or a new company shortly before applying.
  • Disclosing the company but not the directors.
  • Offering an amount with no evidence of where it will come from.
  • Ignoring SARS correspondence while the application is pending.
Where to start: if you are behind with SARS and the debt feels unpayable, the first step is a confidential assessment of what is actually outstanding. We specialise in SARS tax compromise applications and will tell you plainly whether yours is a compromise case. How the catch-up and compromise process works →
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