What can you do if SARS didn’t transfer an old assessed loss to a future year?
15 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: One of our
clients’ 2007 assessed loss was never transferred to the subsequent years. They only picked this up years later when the
company started making profits and it had an effect on tax due. Their objection
was declined at the time due to it being late. Is there another route to follow
where this was a SARS system error as the 2007 clearly recognised the loss and
the company had continuous trading?
A: Section 98 of
Tax Administration Act (the TAA) is worth a try.
Specifically sec 98(1)(d) read with sec 98(2) and sec
99(2)(d)(iii) of the TAA. Although it is submitted that the scope of sec
98(1)(d) is really narrow, it may be worth a try.
Sec 98 of the TAA states the following
‘98. Withdrawal of assessments.—(1)
SARS may, despite the fact that no objection has been lodged or appeal
noted, withdraw an assessment—
(d) in respect of which the Commissioner is satisfied that—
(i) it was based on—
(bb) a processing error by SARS
(ii) it imposes an unintended tax
debt in respect of an amount that the taxpayer should not have been taxed on;
(iii) the recovery of the tax debt
under the assessment would produce an anomalous or inequitable result;
(iv) there is no other remedy
available to the taxpayer; and
(v) it is in the interest of the
good management of the tax system.
(2) An assessment withdrawn under this section is regarded
not to have been issued, unless a senior SARS official agrees in writing with
the taxpayer as to the amount of tax properly chargeable for the relevant tax
period and accordingly issues a revised original, additional or reduced
assessment, as the case may be, which assessment is not subject to objection or
Sec 99(2)(d) of the TAA further determines that sec 99(1)
does not apply to the extent that it is ‘... necessary to give effect to ... an
assessment referred to in section 98(2)’. This would allow SARS to issue a
reduced assessment for the taxpayer despite the fact that the three years have
passed (see sec 99(1)(a) of the TAA).
The Memorandum of the Object of the Tax Administration Laws
Amendment Bill, 2013 stated the following with regards to the amendment to sec
‘In practice, erroneous assessments are often only
discovered after all prescription periods and remedies have expired and it
becomes apparent that it would be unreasonable and inequitable to recover the
tax due under such assessments. Examples are assessments that result
from fraud by a person not authorised by the taxpayer to complete or submit a
return, an undisputed error by the taxpayer in a return or a processing
error by SARS in making the assessment ...’
The Act doesn’t define what ‘a processing error’ is.
However, it can be argued that the fact that an ITA34 doesn’t reflect an
assessed loss could qualify as such.
Sec 98(1)(d)(iv) requires that no other remedy must be
available to the taxpayer. Due to fact that three years have already lapsed
since the date of assessment, your client has no further right to force SARS to
consider its objection. It can thus be argued that no other remedy will be
available and this requirement may therefore be met.
Given the fact that the three years have lapsed since the
date of assessment sec 98(1)(d) of the TAA may be your client’s last remedy. In
terms of sec 98(1)(d), the ‘Commissioner’ must be satisfied that the
requirements are met. Furthermore, the Memorandum of the Object of the Tax
Administration Laws Amendment Bill, 2013 reiterates the fact that sec 98 of the
TAA will only be applied in narrow circumstances. One can therefore expect that
a strict approach would be followed for the authorisation of an application for
sec 98(1)(d). It is difficult to express an opinion as to whether your application
in terms of sec 98(1)(d) will succeed, but it is worth a try.
You can write a letter to SARS, and ask them to first
withdraw the current assessment. In the letter, cite your client’s
circumstances and how they meet the section 98 requirements. Then email it to
the pcc SARS email address for your region.
Secondly, you can ask them to issue a revised original
assessment as mentioned in sec 98(2) of the TAA.
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.