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 on erroneous information.

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.

Published by
Peter O hallaron

Recent Posts

  • Agribusiness
  • Featured Home Image

How African superfoods inspire local agripreneur

Indigenous African ingredients and food traditions are underrepresented on the local and international markets. Black Umbrellas Global Entrepreneur Week 2018…

11 hours ago
  • Caxton
  • South Africa
  • Use only text

OVK increases turnover despite ‘challenging conditions’

The agribusiness, OVK Group, has announced an increase of 8, 55% in turnover for the 2018/2019 financial year compared with…

12 hours ago
  • Featured Home Image
  • Letter from the editor

How to turn Africa’s food fortunes around

Should African countries fail to increase food production and processing to become at least partly self-sufficient, it will be one…

2 days ago
  • World

Brazilian cotton farmers sue Bayer for US$151 million

Cotton farmers in the Mato Grosso region in Brazil are suing Bayer in an attempt to get a US$151 million…

2 days ago
  • By Invitation
  • Featured Home Image

SA agri training needs drastic digital overhaul

Digital technologies and innovations have the potential to revolutionise the world’s food systems. This is why agricultural education and training,…

3 days ago
  • South Africa

No serious injuries reported after Astral chemical leak

A chemical leak at one of Astral’s processing plants in Olifantsfontein had resulted in the hospitalisation of 15 of the…

3 days ago