Safeguard Against Penalties With A Tax Opinion
15 May 2013
Posted by: Author: Graeme Palmer
Source: Graeme Palmer
South African Revenue Services (SARS) may raise
understatement penalties if prejudice has been caused to them or the fiscus.
Penalties can be imposed at 25% or 50% in the case of a ‘substantial
understatement’. There are however circumstances when, notwithstanding that the
taxpayer has erred, SARS will remit the penalty if the taxpayer is in
possession of an opinion by a registered tax practitioner.
An understatement will arise when prejudice is caused
to SARS as a result of –
a default in rendering a return;
an omission from a return;
an incorrect statement in a return; or
if no return is required, the failure to pay the
correct amount of tax.
If there has been an understatement, the taxpayer will
in addition to the tax payable for the relevant tax period, pay an
understatement penalty on the tax shortfall.
When there has been a ‘substantial understatement’ the
penalty will be 25% in a standard case and 50% if the taxpayer has been
obstructive or it is a repeat case. A ‘substantial understatement’ occurs when
the prejudice to SARS for the relevant tax period exceeds 5% of the amount of
tax properly chargeable or refundable, or R1 million.
SARS must however remit the penalty for a ‘substantial
understatement’ if the taxpayer makes a full disclosure of the arrangement by
no later than the date that the relevant return was due, and if the taxpayer is
in possession of an opinion by a registered tax practitioner. The opinion from
the tax practitioner must –
be issued by no later than the date that the relevant
return was due;
be based upon the full disclosure of the specific
facts and circumstances of the arrangement; and
confirm that the taxpayer’s position is more
likely than not to be upheld if the matter proceeds to court.
For example, a taxpayer fails to include a R5 million
receipt in his income based upon an opinion issued by a tax practitioner
stating that the receipt was not revenue in nature but capital. SARS carries
out an audit on the taxpayer and disputes the exclusion and issues an
assessment for the income. Ordinarily the taxpayer would receive at least a 25%
penalty, but because he had an opinion from a registered tax practitioner
before the date of the return confirming that the receipt was capital in
nature, the penalty must be remitted.