Categories: Tax Advice

An unfair, but not unjust, verdict

The consequences of not objecting to an incorrect SARS assessment timeously can be severe, even if the assessment is based…

Do you have to deal with an incorrect SARS assessment?

Be warned, the consequences of not objecting in time are severe, as evinced by New Adventure Shelf 122 (Pty) Ltd v The Commissioner, SARS (case number 310/2016) in the Supreme Court of Appeal (SCA).

But while some might be forgiven for labelling the outcome of this case ‘a travesty of justice’, it should rather be seen as a reminder that the law can, on occasion, be extremely ‘unfair’.

No excuse
In 2007, a certain fixed property was sold to a developer for R17 million. Transfer was effected, but the full purchase price was not paid; later, the property was retransferred to the seller, who kept certain deposits made as damages.

Even though the purchase price had not been paid in full, Capital Gains Tax had been applied in the year of the sale, because the amount had been contractually agreed upon.

Several years later, when the sale was reversed, the seller sought to quash the tax generated because the original agreement had gone wrong.

Instead of the agreed-upon R17 million, only about R4,5 million had been paid.

However, SARS based its original assessment on the initial purchase price of R17 million. In other words, the seller was taxed on funds never received.

The seller attempted to object to the assessment only in 2012, some two years too late, according to Section 81(1) of the Income Tax Act, which holds that a taxpayer aggrieved by an assessment may object, “in the manner and under the terms and within the period prescribed by this Act”, while Section 81(2)(b) notes that the prescribed period for objections may not be extended, “where more than three years have lapsed from the date of the assessment”.

After an appeal for the assessment to be reviewed was rejected, the seller approached the SCA.

However, the strictures of Section 81 proved to be insurmountable. The assessment was held to be final and immutable, despite that fact that it was based on erroneous information.

What could be done?
What could the seller have done? Would another approach, say an action based on unjustified enrichment, have worked?

It may be worthwhile for tax practitioners and lawyers to analyse the facts and ascertain whether, in light of the Section 81 provisions, such an approach might have yielded different results.

Taxpayers, meanwhile, would be well advised to carefully conclude contracts of sale in light of the foregoing facts, lest gains or taxes be applied prior to funds being received.

Recent Posts

Courts order municipalities to adhere to commonage rules

Two recent court rulings on commonages have outlined the rights of those using the areas, as well as the responsibilities…

22 hours ago

Learn about beef BLUP basics

Producers use breeding values to determine the long-term value of certain animals to their herds.

1 day ago

Rethinking sustainable development

Growing awareness of the interconnectedness between water, energy and food security is resulting in a more holistic way of measuring…

2 days ago

Taking steak to the next level

Steak can be cooked and served in a variety of ways, but this Asian-inspired marinade can turn even the tastiest…

2 days ago

Land: access vs ownership

The one crucial point that should not be forgotten by all the organisations and political parties representing, or claiming to…

3 days ago

Agri interventions key to Ramaphosa’s economic stimulus package

President Cyril Ramaphosa announced that government has reprioritised funding towards an economic stimulus package that would focus on agriculture, among…

4 days ago

This website uses cookies.