Every taxpayer needs the services of a registered tax practitioner

In tax matters, many cases heard in the High Court or Appeal Court are decided by means of majority judgements.

Peter O’Halloran - Tax advice

Often, even the most learned lawyers in the land are not in agreement when seeking the true meaning of the taxation statutes. So it was in the matter of Conshu Holdings. Here, in the Supreme Court of Appeal, the judges were divided 3-2 when interpreting the provisions of the tax act that deal with assessed losses, and when SARS has the right to disregard such losses.

READ:Well played in Durban!

The facts of the matter were as follows. A company with a robust assessed loss was acquired by new shareholders who made use of that loss. A year later, SARS disallowed the assessed loss. The changes made by the company’s new owners had the intended results and taxable income existed in that year. This would have been set off against the assessed loss brought forward, had SARS not disallowed it.

The provisions of Section 103(2) of the Income Tax Act seemed to provide that SARS could only disallow an assessed loss in the year in which an agreement to change the shareholding in an assessed loss company was made. As noted, the judges eventually ruled 3-2 in favour of SARS.

A reading of the judgements shows just how close the taxpayer came to winning the case. Nevertheless, the matter is now subject to the rule of stare decisis (lower courts being bound by the decision of the Appeal Court). As such, the interpretation of SARS is settled law should a similarly worded section ever be subject to dispute. This aside, there are numerous other examples of instances where litigants came within a hair’s breadth of winning.

Lawyers are human
This shows that:

  • No one lawyer’s opinion is ever infallible.
  • Sometimes in tax matters, even a court’s interpretation is open to doubt.

Given the fact that every taxpayer is legally entitled to arrange his or her affairs so as not to pay the maximum amount of tax, cases will arise when such arrangements might be set aside by SARS. The unfortunate consequence is often that penalties are charged upon tax that is assessed against the taxpayer after the fact.

How to save money
According to Section 223 of the Tax Administration Act (TAA), such penalties will be remitted:

  • if the taxpayer is armed with an opinion by a registered tax practitioner prior to the arrangements being put into place;
  • if the taxpayer made full disclosure and the opinion was issued prior to the date of submission of the relevant tax return;
  • if the facts were taken into account and the opinion stated that the prospects of the arrangement being upheld by a court of law were good.

Only opinions of registered tax practitioners as defined in the TAA will give rise to the remittance. When arranging your affairs for tax efficiency, get a registered tax practitioner to analyse them for you. It is almost certain to save you money in the long run.