Extension of the period to submit an objection: what constitutes exceptional circumstances?

taxation1Author: Chris de Bruyn(Candidate attorney at ENSAfrica).

In the matter of ABC (Pty) Ltd v Commissioner for the South African Revenue Service (ITC 0038/2015) (“ABC case”), the Tax Court had to consider whether the taxpayer discharged the onus to prove that “exceptional circumstances” existed for an extension of the period allowed for the taxpayer to object to an assessment, in terms of section 104 of the Tax Administration Act, 28 of 2011 (“TAA”).

Objection against assessment or decision

When a taxpayer is aggrieved by an assessment made by the South African Revenue Service (“SARS”), the taxpayer may object to that assessment in terms of section 104 of the TAA. Furthermore, in terms of the provisions of section 104(3) of the TAA, a taxpayer entitled to object to an assessment or “decision” must lodge an objection in the manner, terms and period prescribed in the rules promulgated under section 103 of the TAA (the “Rules”).

In terms of Rule 7(1), a taxpayer must deliver a notice of objection within 30 days after:

1. the date of assessment if the taxpayer does not first request reasons for the assessment; or

2. the date of receiving a notice from SARS setting out the reasons for the assessment where the taxpayer has requested reasons for the assessment.

It is crucial for a taxpayer to adhere to the prescribed period, or any extended period granted by SARS, since if an objection is submitted late and extension is not obtained, the relevant assessment is final.

In terms of section 104(4) read with section 104(5) of the TAA, the 30-day period within which the notice of objection must be submitted may be extended by a senior SARS official if that official is satisfied that reasonable grounds exist for the delay in lodging the objection. This extension is limited to a 21-day period, unless the senior SARS official is satisfied that exceptional circumstances exist which gave rise to the delay in lodging the objection.

Exceptional circumstances

Interpretation Note 15 (Issue 4) (“IN 15”) provides guidance on the factors that a senior SARS official must take into account in determining whether to extend the period for lodging of, inter alia, an objection in terms of section 104(4) of the TAA.

IN 15 refers to the fact that the term “exceptional circumstances” is not defined for purposes of the TAA and states that consideration should therefore be given to its ordinary grammatical meaning, taking into account the context in which it appears and the purpose to which it is directed.

The term “exceptional” is generally defined as “unusual; not typical” and the circumstances must therefore be of such a nature that they would be considered as being something out of the ordinary and of an unusual nature. Each case would, however, have to be considered on its own merits in order to determine whether the reason is exceptional.

IN 15 further provides that, although not directly relevant, section 218 of the TAA, in relation to the remittance of penalties in exceptional circumstances, provides an indication of the type of occurrences that may constitute exceptional circumstances. IN 15 provides that the mere existence of one of the factors listed below is not sufficient and that the taxpayer needs to demonstrate a causal link between the factor and the reason for delay. These factors include:

  • a natural or human-made disaster;
  • a civil disturbance or disruption in services;
  • a serious illness or accident; and
  • serious emotional or mental distress.

In MV Ais Mamas Seatrans Maritime v Owners, MV Ais Mamas & Another (2002 6 SA 150 C at 156) the court held that it is not desirable to lay down precise rules regarding the circumstances which should be regard as “exceptional”. However, the court provided that, from an examination of the authorities, the following emerged:

  • what is ordinarily contemplated by “exceptional circumstances” is something out of the ordinary and of an unusual nature; something which is excepted in the sense that the general rule does not apply to it;
  • in order to be exceptional, the circumstances concerned must arise out of, or be incidental to, the particular case;
  •  whether or not exceptional circumstances exist is not a decision that depends upon the exercise of a judicial discretion: their existence is a matter of fact, which the court must decide accordingly;
  • the meaning of the word “exceptional” has two interpretational meanings, the primary meaning of which is unusual or different and the secondary meaning being markedly unusual or specially different;
  • where a statute directs that a fixed rule will be departed from only under exceptional circumstances, a strict, rather than a liberal meaning will be given to the phrase to give effect to the legislature’s intention. The court would need to carefully examine any circumstances relied upon as allegedly being exceptional (our emphasis).

ABC case

In the ABC case, the court provided that the wording of section 104(5) is clear. Where a senior SARS official allows an extension, such extension must not be for a period exceeding 21 business days, unless exceptional circumstances exist. The onus is therefore on the taxpayer to satisfy the court that “exceptional circumstances” exist, which the court held to mean that “unusual facts must be proven which have a causal connection to the delay which resulted”.

In the ABC case, the taxpayer argued that the following exceptional circumstances existed:

1. the assessments involved complex issues of law;

2. the court was in recess during the period in which the objection was to be submitted (this is a reference to dies non for purposes of the determination of relevant periods per the Rules, i.e. the period from 16 December to 15 January);

3. the taxpayer was busy with negotiations with SARS during the period in which the objection was to be submitted;

4. the taxpayer was dissatisfied with the advice of his auditor and there was a delay in obtaining further professional advice; and

5. it took a long time for the taxpayer to obtain new professional advice from a practitioner based in Florida.

The court rejected the arguments of the taxpayer on the grounds that:

1. no evidence was presented indicating the complexities of the issues of law;

2. the court recess has no impact on the lodging of an objection by a taxpayer as no court official is involved in the process of lodging an objection;

3. no evidence was presented of substantial negotiations between the taxpayer and SARS during the period in which the objection was to be submitted;

4. the taxpayer presented no evidence that the advice from its advisors was doubtful, but rather it appeared that the taxpayer was simply dissatisfied with the response received from SARS; and

5. there are multiple tax practitioners operating in close geographical proximity to where the appellant is based and any of which could have been approached for an opinion.

The court held that, as the submissions of the taxpayer were neither unusual nor causally connected to the delay, no “exceptional circumstances” existed and the taxpayer’s case was dismissed.

Chris de Bruyn is a candidate attorney in the tax department at ENSafrica.

Reviewed by Nicolette Smit, director at ENSafrica’s tax department.