Author: Esther van Schalkwyk, Tax Consultant, BDO South Africa
Section 102 of the Tax Administration Act places the burden of proving, amongst other things, that an amount or item is deductible or may be set-off, on the taxpayer. SARS, on the other hand, bears the onus in respect of, amongst other things, the facts on which SARS based the imposition of an understatement penalty.
The Tax Court recently handed down judgment in VAT case no. 867, in which the Court once again confirmed the importance of the onus of proof in tax disputes.
In this case, the taxpayer (‘Mr X’) disputed his assessment for payment of VAT. SARS had at the outset of the appeal conceded that Mr X should not have been assessed for output tax in respect of certain contracts in which Mr X had (in his personal capacity) not been the contractor or recipient of income. On the other hand, all input tax claimed in respect of expenses relating to these contracts as well as all personal expenses unrelated to Mr X’s telecommunication phone business had to be disallowed.
The issues on appeal were thus confined to the computation of input tax and Mr X’s entitlement to claim such tax.
On appeal, Mr X claimed that all his tax invoices and other supporting documents were given to SARS during the audit process and were never returned to him, thus rendering him unable to properly present his case. This was disputed by SARS.
The Court was mindful that the onus of proof rests on the taxpayer to show the deductibility of the input tax so claimed. Although the taxpayer claimed to be at a disadvantage as he was not in possession of the relevant invoices, vouchers and other supporting documents, the Court held that Mr X was unable to show on the documentation that any of the tax inputs were indeed valid claims (save in respect of one supplier). The Court also accepted SARS’s calculations to arrive at the invalid input claim that had to be disallowed.
The Court however held that the penalties and interest levied by SARS should be remitted due to the history of the matter and the partial success achieved by Mr X in respect of the output tax as assessed by SARS.
Taxpayers should accordingly be mindful of the onus of proof resting on them in tax disputes and must properly record all matters relating to their tax affairs.