Madonsela successfully challenges SARS

Public Protector Thuli Madonsela has successfully challenged the SA Revenue Service’s (Sars) taxation of compensation paid to the estate of a deceased civil servant, her office said on Wednesday.

“In a landmark case… the collector of revenue agreed to refund the estate of the said official an amount of R110,903,” the Protector’s office said in a statement.

“The amount had been deducted, as income tax, from the department of correctional services’ settlement offer of R484,697, which was paid to the official’s estate.”

Madonsela found in 2011 that the process followed by the department in terminating the man’s services constituted maladministration.

“At the time, Minister [Nosiviwe] Mapisa-Nqakula accepted the remedial action, with her department agreeing to implement it fully,” Madonsela’s office said.

“Unfortunately, the official died before the remedial action could be implemented, prompting the department to pay the compensation to his estate.

“However, what then came into question was whether the settlement offer by the department constituted income in the hands of the taxpayer or his estate, and whether the benefits were therefore taxable in terms of the Income Tax Act,” it said.

Sars later agreed that the compensation could not be taxable.