Cape Town – In future the SA Revenue Service (Sars) will not be permitted to entertain so-called “requests for correction” of tax assessments, except if it is satisfied that there is a “readily apparent” undisputed error in the assessment.
In the view of David Warneke, director and head of tax technical international audit, tax and advisory services company BDO South Africa, it is likely that taxpayers will be severely discriminated against by this amendment.
He pointed out that 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,” said Warneke.
Sars has indicated that it 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”, according to Warneke.
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 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.
In an interpretation note Sars indicated that the term “exceptional circumstances” may be understood to be referring to a natural or human-made disaster; civil disturbance or disruption in services; a serious illness or accident or serious emotional or mental distress.
Warneke illustrates by means of an example:
Situation 1:
In the submission of his income tax return a taxpayer includes his entire remuneration as taxable. He is unaware that, since he was outside South Africa 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 adviser.
Sars may argue that, although the error would be undisputed if the facts submitted by the taxpayer are proven to be correct, the error is not “readily apparent”. This is because 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 country 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 proven to be correct, the error is not “readily apparent”. This is because 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,” said Warneke.
“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.”