We are five months into a 12-months voluntary unclaimed financial assets disclosure programme. With only a few months to go, it is time to think about this some more than we are looking forward to the December holidays.
The Unclaimed Financial Assets Act of 2011 (Act) provides for reporting and dealing with unclaimed financial assets. This Act establishes the Unclaimed Financial Assets Authority (Authority).
Unclaimed assets are those which have been presumed abandoned and transferred to the authority and include cheques, money orders, deposits, dividends, unpaid wages, shares and interest unclaimed over a period of one to five years as specified under the Act.
It is important to refer to the Act and regulations to determine the specific period for each asset.
Any entity that holds assets on behalf of an owner or that is in possession of those belonging to another is known as the holder in relation to unclaimed financial assets.
A holder has an obligation under law to report, pay, and deliver any unclaimed financial assets by 1 November each year for the period of 12 months preceding 30 June.
A holder who fails to do so within the time prescribed by the Act is liable to penalties which include one per cent interest, above the adjusted prime rate per annum, per month and a penalty equal to 25 per cent of the value of the assets that should have been paid or delivered.
The Finance Act of 2022 amended the Act by introducing a waiver of penalties under the Voluntary Unclaimed Financial Assets Disclosure Programme (Programme).
The authority can now waive penalties with the approval of the Cabinet secretary. The waiver applies for 12 months from 1 July 2022 and only to assets held up to 30 June 2022.
Certain states in the US such as Wisconsin offer similar voluntary disclosure agreement programmes. As with Kenya’s programme, Wisconsin has allowed free disclosure for the period of 1 February 2022 to 28 February 2023.
Wisconsin has also set conditions that apply to the programme. Other states such as Delaware, New York, Florida, Georgia, Ohio, Virginia and California also offer formal disclosure or compliance programmes.
All in all, it would be in the best interest of the holders to take part in this voluntary programme as it provides them with an opportunity to achieve compliance with their legal obligation to report unclaimed financial assets and in turn, avoid incurring penalties.
Reporting unclaimed financial assets to the authority can help taxpayers legally clean up their books by getting rid of unclaimed assets in their accounts.
Costs incurred in conducting a self-assessment on reportable unclaimed financial assets are deductible for tax purposes, however, fines and penalties incurred after failing to report unclaimed assets are not tax-deductible expenses.
In short, the fines and penalties cannot be deemed to have been incurred in generating income therefore will not be allowed as expenses when computing the tax liability for the taxpayer.
Taxpayers can also explore putting more effort towards tracing owners of unclaimed financial assets within the time provided under the Act.
Finally, everyone can reach out to the authority to find out if they are holding their assets by dialling *361# and following the prompts or logging in to the Authority's online database or visiting the Authority.
The authors work for Cliffe Dekker Hofmeyr incorporating Kieti Law LLP