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FAQ - 4 December 2014

03 December 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Remedies where SARS claims you have earned income which you have not actually earned 

Q: A client received an original assessment dated 31.01.2012, which was objected to 08.02.2012 in respect of the underestimation of provisional tax. The objection was allowed and a nil assessment was issued. On 19.03.2012 an additional assessment was raised in which SARS had increased the local interest received by Rxx xxx as well as disallowed the medical deduction. The taxpayer has requested from SARS the reason and proof of the local interest received, to which the tax practitioner was told that they cannot see this on the system. 

The client has on many an occasion attempted to request this information from SARS as to her knowledge there is no additional interest received other than that originally declared on the return. We would like to know what you would suggest the next step to be. The client is attracting interest on this amount and she would really like to close this off.

A: If everything would have been done in time, you could have requested reasons for the additional (19.03.2012) assessment before objecting.

You stated that: 

"The taxpayer has requested from SARS the reason and proof of the local interest received, to which the tax practitioner was told that they cannot see this on the system. The client has on many an occasion attempted to request this information from SARS as to her knowledge there is no additional interest received other than that originally declared on the return.”

My question is how was the request for "this” information done? Was it done telephonically or was a formal request for reasons for an assessment done as laid out in rule 6 of the Rules promulgated in terms of section 103 of the Tax Administration Act?

Unfortunately you are way outside the period for requesting reasons for the additional 2011 assessment.  What makes things difficult is that it doesn’t seem your client is certain that she actually earned the interest income that SARS claims she earned. 

Your possible remedies include requesting SARS reduce or withdraw the assessment as per sections 93(1)(d) or 98(1)(d) respectively. 

Section 93 remedy

According to section 93(1)(d) of the Tax Administration Act (TAA): 

"SARS may make a reduced assessment if SARS is satisfied that there is an error in the assessment as a result of an undisputed error by—

         i.            SARS; or

         ii.            the taxpayer in a return.”

What needs to be determined then is the meaning of "undisputed error by SARS”.

SARS’ interpretation of an ‘undisputed factual error’, which appears in section 98(1)(d)(i)(aa) of the TAA is that one should not encounter any interpretation problems when applying the law to the facts. We submit that the same could be said of "undisputed error” in section 93(1)(d).

Section 93(2) additionally points out that "SARS may reduce an assessment despite the fact that no objection has been lodged or appeal noted.”

You could request for the 2011 additional assessment to be reduced, citing the fact that SARS erroneously claimed your client earned interest income (when this was actually not the case) and that this amounts to an undisputed error by SARS. You could also, on the same basis, state that their disallowance of the medical deduction was also an undisputed error and should be corrected. 

Section 98 remedy

Section 98(1)(d), which is similar to section 93(1)(d), may also be applicable. It states: 

SARS may, despite the fact that no objection has been lodged or appeal noted, withdraw an assessment which in respect of which the Commissioner is satisfied that—

it was based on—

(bb) a processing error by SARS; 

1.       it imposes an unintended tax debt in respect of an amount that the taxpayer should not have been taxed on;

2.       the recovery of the tax debt under the assessment would produce an anomalous or inequitable result;

3.       there is no other remedy available to the taxpayer; and

4.       it is in the interest of the good management of the tax system.

After the assessment is then withdrawn in terms of section 98, a corrected assessment can be issued by SARS. You can cite the same reasons as those cited for the section 93 remedy for why the assessment should be withdrawn.

You can choose which of these remedies you would like to make use of. For both, you would have to write a letter to SARS and drop it off at a local branch or you can send it to the pcc.central@sars.gov.za email address.

2. Penalties for late payment of VAT depending on the method of payment 

Q: I see that for the last few months SARS automatically charges penalties on the VAT returns if they are not paid before the 25th. This causes me to write to SARS every month and ask them to write it off. Please can you advise if you have encountered the same problem with other practitioners?

A: You did not indicate how the amount due is paid.  

In terms of proviso (iii) to section 28(1) of the Value-Added Tax Act a vendor registered with SARS to submit returns electronically is deemed to have submitted the return and made payment within the period ending on the twenty-fifth day if the vendor submits the returns and makes full payment of the amount of tax electronically and in the prescribed form and manner within the period ending on the last business day of the month during which that twenty-fifth day falls.  

If payment is for instance made by cheque after the twenty-fifth day SARS would be entitled to levy penalty.  The same would apply if the return is not submitted electronically.  

The payment must also be in SARS’s bank before close of business –for some banks this would mean before 12:00 on the last day.  If not, SARS would also levy the penalty.

Follow-up Q: The return is submitted via efiling and the payment via the credit push method on efiling.

Follow-up A: You have now indicated that the 'return is submitted via efiling and the payment via the credit push method on efiling’.  Consequently, as indicated in our previous guidance, the payment of the amount of tax can be made on the last business day of the month during which that twenty-fifth day falls.  SARS would therefore be wrong to levy a late payment penalty in this instance if the payment was received by them on the last business day of the month. 

In summary: the general rule is that payment due on a VAT201 must be made on before the twenty-fifth day of the relevant month.  If, however, the electronic route is followed (efilng and credit push), the payment can be made after the twenty-fifth day until the last business day of the month.  This is what we explained in our previous guidance.  If the last day of the month falls on a Sunday for instance, the payment will have to be made on the Friday to avoid the penalty.  

We trust this is clearer.  As indicated we are not aware of other tax practitioners who are experiencing the same problem.  

3. Apportionment of the primary residence exclusion for CGT purposes   

Q: Whether an individual will be able to claim a capital loss in terms of the selling of his primary residence, if he only physically resided in this property for 2 of the 4 years the property was held.

Our client is planning to sell his primary residence and a capital loss will be realised. However he only stayed in the property for 2 of the 4 years the property was held. We would like to know whether our client will be entitled to claim the capital loss and how the calculation / apportionment will work in this case. Also, if you can just confirm that attorney fees and transfer costs are not a deductible cost for capital gains tax purposes.

I am of the opinion that there could be an apportionment allowable, but I am uncertain as to the exact calculation thereof. I am also of the opinion that attorney fees and transfer costs are not deductible for capital gains tax purposes.

A: The matter that you require guidance on is covered in Part VII: Primary residence exclusion (paragraphs 44 – 50).  The SARS CGT guide covers it chapter 11.  

To provide the guidance required we need to know what the residence was used for in the period that he didn’t reside in it (was not ordinarily resident in that residence).  The capital loss determined in respect of the disposal of the primary residence of that person will then only be available for set-off to the extent that it exceeds R2 million.  

We assume the attorney fees and transfer costs relate to the acquisition of the property.  These costs will qualify as base cost – see paragraph 20(1)(c)(i) and (iii) of the Eighth Schedule – if they were actually incurred as expenditure directly related to the acquisition or disposal of that asset.   

Disclaimer: Nothing in these queries and answers should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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