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

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

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.

Disclaimer: Nothing in this query and answer 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 answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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