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When does prescription apply if SARS discover they never levied STC on an interest-free loan?

16 July 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: By when can SARS stop assessing interest-free debit loans with related entities and individuals as a deemed dividend?

1.            Will it be covered in terms of s 99(1)(a) of the Tax Administration Act – three years after the date of assessment of an original assessment by SARS, thus if the 2012 ITR14 was assessed 12/12/2012, will it "expire” 12/12/2015 since it is usually assessed from an income tax review?


2.            Or is STC opened for 5 years since it is a self-assessment? But if that’s the case there will not be an original assessment to count the 5 years from.


3.            Can SARS reason that if STC was not voluntarily declared and assessed on a debit loan, SARS can therefore reopen it regardless of the period due to 99(2) (i)(ii)(iii)?

A: With regard to prescription of a deemed dividend (section 64C) we submit that the further proviso to section 79(1) of the Income Tax Act (now deleted) applies.  For ease of reference we copy it here:

"Provided further that where the Commissioner has in respect of any year of assessment made an assessment upon any company for normal tax purposes he or she shall not after the expiration of three years from the date of the said assessment (or, where more than one such assessment has been made, from the date of the latest of such assessments), or such longer period as the company and the Commissioner may agree prior to the expiry of that three year period, make any assessment in respect of any amount of secondary tax on companies payable by the company in respect of any dividend declared during that year, unless the Commissioner is satisfied that the fact that an assessment in respect of the said amount was not previously made was due to fraud or misrepresentation or non-disclosure of material facts.”

The self-assessment definition was introduced by the Tax Administration Act.  The secondary tax was repealed before the Tax Administration Act and we submit that section 79(1), referred to above, must be applied and not section 99. 

For the same reason we also don’t believe that SARS can apply section 99.  Section 79(1) (Income Tax Act) also refers to "fraud or misrepresentation or non-disclosure of material facts”.  We submit that the intention of section 79(1) was to provide for a prescription rule in respect of the secondary tax on companies and that the Tax Administration Act therefore doesn’t apply to that. 

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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