The Tax Administration Laws Amendment Act of 2015, which was promulgated on 8 January 2016, amended section 93(1)(d) of the TAA and in future SARS will not be permitted to entertain so-called ‘requests for correction’ of tax assessments, except if SARS is satisfied that there is a (currently undefined) ‘readily apparent’ undisputed error in the assessment.
It is likely that taxpayers will be severely discriminated against by this amendment. What is ‘readily apparent’ to one person may not be so to another. The number of cases in which SARS is likely to grant requests for corrections is likely to drop dramatically and a lack of consistency in interpretation between SARS’ assessors may be taken as a given.
The previous wording of the TAA stated that SARS may issue a reduced assessment if satisfied that an assessment contains an undisputed error by SARS or the taxpayer. The reduced assessment could be made within five years of the date of the original assessment in the case of VAT, which is a self-assessment tax, and within three years of the date of the original assessment in the case of income tax.
The first draft of this amendment, which was contained in the Draft Tax Administration Laws Amendment Bill of 2015, proposed that a correction would have to be requested by the taxpayer within six months from the date of assessment. Under ‘exceptional circumstances’, a term which was not defined, SARS would have been entitled to extend the six month period.
Since then, SARS and National Treasury accepted that the three year period will be retained and that SARS will attempt to mitigate the risks presented by older requests for correction through its risk management systems. The insertion of the phrase ‘readily apparent’ in addition to the requirement that the error be ‘undisputed’ is to ensure that ‘substantive issues are properly challenged through the objection and appeal system’. In terms of the objection and appeal system, the taxpayer has only 30 business days in which to object to an assessment. A senior SARS official may under section 104(5) of the TAA extend the 30 business day period by up to 21 business days if reasonable grounds exist for the delay in lodging the objection – resulting in a maximum of 51 days in total. The period in which an objection may be lodged may be extended by up to three years if ‘exceptional circumstances’ exist which gave rise to the delay.
An indication of how SARS is likely to interpret the term ‘exceptional circumstances’ is found in Interpretation Note 15, dealing with the exercise of SARS’ discretion in the case of late objections or appeals. The Interpretation Note indicates that the term ‘exceptional circumstances’ may be understood to be referring to, among others:
- A natural or human-made disaster.
- A civil disturbance or disruption in services.
- A serious illness or accident.
- Serious emotional or mental distress.
Let us consider the practical implications of the amendment in the following situations:
Situation 1:
In the submission of his income tax return a taxpayer includes his entire remuneration as taxable, unaware that since he was outside of the Republic for the entire year of assessment in earning the remuneration, it should be entirely exempt from South African income tax. He only discovers his error some months later when he discusses his circumstances with a tax advisor.
SARS may argue that although the error would be undisputed if the facts submitted by the taxpayer are proved to be correct, the error is not ‘readily apparent’ since to prove the error would involve verifying the information provided to the terms of the taxpayer’s work contract and also of verifying the period spent outside the Republic to the taxpayer’s passport. No ‘exceptional circumstances’ exist which means that the taxpayer would be out of time in attempting to follow the objection and appeal route. As a result the taxpayer would have no available remedy.
Situation 2:
In the submission of his income tax return a taxpayer includes a capital gain arising from the disposal of his art collection. He was unaware that since he held the art collection as a ‘personal use asset’, the capital gain should have been disregarded. The taxpayer discovers his error some months later in conversation with a friend.
Again SARS may argue that although the error would be undisputed if the facts submitted by the taxpayer are proved to be correct, the error is not ‘readily apparent’ since to prove the error would involve an enquiry into whether or not the taxpayer used the art collection mainly for private purposes. No ‘exceptional circumstances’ exist which means that the taxpayer would be out of time in attempting to follow the objection and appeal route. As a result the taxpayer would have no available remedy.
SARS would probably argue that in both of the above situations the taxpayer had an available remedy in that he should have objected to the assessment within 30 business days. However, the point is that in the above situations the taxpayer would be able to prove the facts with relatively little effort but in terms of the above amendment SARS may argue that the error is not ‘readily apparent’ and therefore that it is powerless to issue a reduced assessment. The financial consequences to the taxpayer may be enormous. Moreover, the majority of South African taxpayers are not acquainted with tax principles.
In view of the promulgation of this amendment it is evident that taxpayers who have any level of complexity in their financial affairs should seek professional assistance with the submission of their tax returns.
BDO
TAA: section 93(1)(d) and 104(5)
Tax Administration Laws Amendment Bill, 2015
Tax Administration Laws Amendment Act 23 of 2015
SARS Interpretation Note 15