The Never-ending (Tax Return) Story

Authors: Alan Lewis and Dee Bezuidenhout (ACBS)

This article will explore the extent to which the South African Revenue Service is in touch with the basic provisions of the Tax Administration Act and the rights, which it grants taxpayers, to object to income tax assessments. 

This is a true story. After the taxpayer had submitted his tax return, in which he claimed certain expenses as deductions, which he had incurred in his property letting business, SARS informed him that his return had been selected for verification and that he was required to review his tax return against his relevant material. If he found any error, he was to submit a revised income tax return. Alternatively, if he found no error or he was unsure what to do, he was required to submit copies of the relevant material to SARS. The required documents included medical scheme certificates and receipts; his travel log book and, according to the SARS notice, "any other documents relevant to your declaration”. 

This notice did not specifically instruct him to submit documentary evidence of the expenses, which he claimed as deductions in respect of his property rental business. 

In response, the taxpayer delivered the necessary documentation, as well as detailed spreadsheets of the expenses relating to his property rental business. In due course he received another assessment, which simply disallowed all of those expenses. The assessment did not provide reasons for this decision. 

Consequently, and in terms of rule 6 of the rules, which prescribe the procedures for noting objections and appeals against assessments, (the rules) the taxpayer requested in writing that SARS provide reasons for the decision so that he could object to the assessment. At the same time, SARS collections department began demanding payment of the tax debt, which was created by the 2nd assessment. 

In the light of SARS persistent demand for payment of the tax debt, the taxpayer made a written application for the postponement of his obligation to pay the tax debt, pending the finalisation of his objection against the offending assessment. 

When the taxpayer arrived at the SARS Randburg office, the employee who attended to his enquiry, allegedly scoffed at his request for reasons for the assessment, and informed him that instead he should have objected to the assessment. However, he grudgingly accepted the request for reasons for the assessment, and the application for the postponement of the taxpayer's obligation to pay the assessed taxes, but told the taxpayers that "these documents would not help you”. 

Despite the delivery of the request for a postponement of the obligation to pay the assessed taxes, SARS' collections department threatened to institute collections proceedings against him. Consequently, he informed SARS in writing that he intended to approach the High Court for an order directing SARS to attend to his request for a postponement. 

In reply, SARS informed him that, as he had not yet objected to the assessment, they could not deal with his request for the postponement. However, at the same time they also provided him with detailed written reasons for disallowing the deduction of the expenses which he claimed. These reasons identified each of the different expenses which SARS had disallowed, as well as the reason for doing so. 

In the light of the reasons for the assessment, the taxpayer prepared and delivered an objection to SARS, on the basis that he had incurred the expenses and possessed the documentary evidence to support his claim. In addition to dealing with the merits of the matter, the objection also explained that the objection had been delivered within the period of 30 business days, calculated from the date of the taxpayer’s receipt of the reasons for assessment, as prescribed by rule 7 of the rules. 

Despite this explanation, SARS informed the taxpayer that his objection was invalid because it had not been delivered within a period of 30 business days, calculated from the date of the assessment. 

The taxpayer then brought an application to the tax court, in terms of rule 56 of the rules, in which he sought an order declaring his objection to be valid, as well as an order directing SARS to pay his legal costs for doing so. 

Within days of its receipt of this application, one of SARS’ legal managers wrote to the taxpayer and informed him that SARS was prepared to deal with the objection, and requested him to deliver specified supporting documentation. 

The taxpayer agreed to do so, and also agreed to delay the application, pending the final adjudication of his supporting documentation. Within a few days of its receipt of those documents, SARS informed him that it had partially allowed those expenses, issued the necessary reduced assessment, and had paid a refund of approximately R41 000 into his bank account. 

In the writers’ opinion, the rules, which are applicable to this matter, are clear, and simple. A taxpayer, who is aggrieved by an assessment, is entitled to seek written reasons for those assessments, so that he can prepare a detailed objection, as prescribed by rule 7. This is a basic right of every taxpayer, who receives an assessment. SARS has no right to ridicule that request, or to refuse it, if it is made in the manner prescribed by the rules. 

Similarly, the time period of 30 days, as prescribed by rule 7, in which to note the objection, after receipt of those reasons, is clear. On these premises, SARS decision, that the objection was invalid, is most unfortunate, and highly questionable. 

In terms of section 164(2) of the Tax Administration Act, Act Number 28 of 201, as amended ("the TAA”) a taxpayer who intends to object to an assessment, is legally entitled to seek a postponement of that taxpayer’s obligation to pay the disputed taxes. This remedy is not only reserved for those taxpayers, who have indeed objected to an assessment. Consequently, SARS apparent refusal, to consider the taxpayers request for a postponement, prior to the delivery of his objection, is unlawful. 

In the writers’ opinion, SARS treatment of the taxpayer, prior to the receipt of the application to declare his objection to be valid, is completely unacceptable. The taxpayer invoked his basic rights, namely requesting reasons for SARS assessment, and requesting a postponement of his obligation to pay the disputed taxes, which is granted to every taxpayer in terms of the TAA. However, it appears that the relevant SARS officials did not understand or accept, that the taxpayer indeed possessed those rights. 

All tax practitioners are required to be registered member of a recognised controlling body, and in that capacity to comply with annual requirements regarding continued professional education. In the event that they fail to do so, they can face disciplinary action, and even cancellation of their membership. This legislation is not applicable to SARS employees who assess taxpayers.

The time and effort needed in order to resolve this matter was extensive and unnecessary. This was a simple matter, in which a relatively small number of issues were involved. It is unacceptable that taxpayers should face these obstacles when finalising the assessment process. 

It is possibly time that the rules be amended to provide that no assessment will be valid unless it is accompanied by a detailed explanation, of why it has been issued. 

This article first appeared on the July/August 2016 edition on Tax Talk.