Is it possible to fix a problem that arose in a previous assessment if SARS decides to issue a reassessment? And what if the problem is one caused by the taxpayer, say in mistakenly not claiming all deductions he or she was entitled to?
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Judge Noel Hurt dealt with these issues in 2011 when he handed down his ruling in cases 11045 and 11046 in KwaZulu-Natal’s Tax Court. Two partners were assessed to tax in a reassessment issued by SARS, which audited the partners and disallowed certain deductions they had claimed in the reassessments. The partners sought the assistance of a firm of professional tax advisors, who were of the opinion that (a) the reassessments were erroneous and (b) certain losses had not been claimed in previous returns of income.
Is the taxpayer aggrieved or not?
When their objections in respect of the deductions previously unclaimed were disallowed by SARS, the partners appealed to the Tax Court. The relevant statute allows a taxpayer ‘aggrieved’ by an assessment to lodge an objection thereto. SARS held that a person who causes his or her own problem by not including all of allowable deductions cannot be ‘aggrieved’.
The judge made a thorough analysis of the arguments presented to him. In his ruling he held that, in light of the fact that what is due to the fiscus is strictly prescribed by statute and should be accurate, a taxpayer whose taxable income has been determined on an erroneous basis is always ‘aggrieved’, even if the source of error is entirely attributable to the taxpayer.
Previous assessment
The second question to be answered was whether an objection to an assessment is limited only to matters germane to that particular assessment, or whether the taxpayer may object to matters that should or could have been objected to in a previous assessment.
The judge held that a reassessment includes a previous assessment and that a taxpayer can lodge a valid objection to a reassessment in which previous issues may be canvassed within the time and other parameters of the objection vis-à-vis the reassessment.
In other words, a reassessment can be a second chance for the taxpayer to lodge an objection to something that ‘aggrieved’ him or her but is not an issue in the second assessment. There is no limitation to the grounds of reassessment.
Golden opportunity
SARS referred to case authority to the contrary, but in a lucid and logical argument, the partners’ counsel dealt with such authority, showing that it was not binding and involved a repealed act. The judge’s ruling should be kept in mind by tax professionals when faced with reassessments, as these may contain a golden opportunity to fix a taxpayer’s affairs with respect to a particular tax period once and for all.
Phone Peter O’Halloran on 011 655 7188 or visit www.taxdomain.co.za.
