Section 89 quat : Perhaps Something Of Interest…
12 November 2009
Posted by: Author: Hendrik J van Deventer
Section 89 quat : Perhaps Something Of Interest…
At the recent SAIT National Tax Conference,which I thought was a resounding success,a National Treasury representative said something along the lines of: ”The law is an expression of intent and that one should not look at the meaning of the words used” during the panel discussion on tax avoidance.Now,I am not going to write about the whole issue on what constitutes tax avoidance because even a panel of highly educated and qualified individuals agree to rather disagree.I am rather going to share with you my ‘a little south of sanity’ interpretation of a certain provision in the Act.
1)It is merely a sincere attempt to understand the legislature’s intent with the provision.This is my interpretation of s 89quat(2) of the Act and how I believe it should be,and should have been, applied.I am aware of the amendments (words changed and now applicable to all taxpayers) but,in my opinion, the old s89quat(2) is still going to apply to many taxpayers.My problem with s89quat(2) is in the wording thereof and more specifically the following underlined words:"If the taxable income of any provisional taxpayer as finally determined for any year of assessment…from the effective date…”
2)Interpretation: What does the word ‘if’ mean? The word "if" is defined in Concise Oxford Dictionary as "introducing a conditional clause”.Unless the taxable income has not yet been finally determined,then surely the provisions should not apply.
3)A conditional clause would suggest some sort of contract.I am not a lawyer but my very basic understanding of a contract is that there are parties to it and that these parties have to perform.So the contracting parties in this instance are the Commissioner and the taxpayer I would assume,with the contract being that the taxpayer will submit a true and full return as required by s66 (13).
4)To the Commissioner for assessment?In essence, ‘I will render a full and true return and in turn, you determine the amount on which I have to pay tax’.The Act defines in s1 that an assessment requires the determination by the Commissioner of an amount on which tax is leviable.The way in which I define the word ‘amount’ as used in the context of an assessment is that it surely must mean ‘taxable income’ as this is ultimately the amount of which the tax leviable is based.
If the Commissioner is the one determining taxable income (applying his mind of course),then how can it be the taxpayer? The current Personal Income Tax System (PITS) of taxation is not yet a system of self-assessment, at least to my knowledge, and the taxpayer therefore relies on the Commissioner to calculate both his taxable income and tax due.So if no determination has been made by the Commissioner, does this not suspend the provisions of s89quat(2) until such time?
The provisions (prior to amendment) applied only to "any provisional taxpayer”.It is a pity that no provisional taxpayer has ever taken the matter to court to test whether it violates the right of property. Since the provision is applied only to provisional taxpayers, I have always had my doubts around the constitutionality of s89quat. Admittedly,I have never researched the matter. However, having had the privilege to read an extract of his thesis, Dr Beric Croome,a specialist on the topic of taxpayers’ rights, might share my view as he is of the opinion that discriminatory taxing provisions are likely to violate the right to equality contained in s9 of the Constitution
5)Another requirement of s89quat (2) is "finally determined”.Based on my interpretation,this would require that the Commissioner had raised an assessment where both he and the taxpayer are satisfied with the income and deductions.This surely then implies that any disputes have also been resolved?
Therefore,until a final determination has taken place it should suspend the provisions of s89quat (2) from applying.Then we have the "any year of assessment” bit,which leads me into the snake in the grass of s89quat and that is the darn definition of "effective date”.This is where everything went and will go horribly wrong for the provisional taxpayer.
The provision requires that a provisional taxpayer must make a payment of all outstanding taxes for that year of assessment if his/her taxable income has been finally determined by the effective date. But if the commencement of the filing season, like the 2008 filing season,is delayed, then how will the provisional taxpayer meet the requirements of "if the taxable income is finally determined” by the effective date if the effective date is only two weeks into the filing season and the Commissioner is responsible for the determination of taxable income?
what if I am an income beneficiary of a trust but the accounts have not been drawn up and I am therefore in no position to make a payment by the effective date?
What if I am a director of a company and in the same boat as the trust beneficiary?
What if there is a dispute in a prior year of assessment (for example 2008) that finally gets resolved today? According to the Act, I will have to pay interest from 1 October 2008 until today. How fair is that?
I was always made to believe that the third payment was a voluntary payment and that is also the reason why SARS no longer issued the IRP6 (3) forms.If this is meant to be a voluntary payment,why then impose interest if the payment is not made?There clearly is nothing voluntary about s89quat.
In Daly v the Revenue Commissioners
6)It was found that taxing measures that cause undue hardship would not pass muster under s25 of the Constitution.Many provisional taxpayers are charged interest under s89quat (2) not because they blatantly ignore the provisions (being a practicing tax practitioner,I can honestly say that provisional taxpayers are well aware of s89quat (2)) but because they are simply not in a position to comply.Is it fair to comment that undue hardship is caused?It is a provision that has one result, and one result only:
My view is that the provisions of s89quat (2) should be suspended until:
•the provisional taxpayer’s
•has finally been determined
•by the Commissioner
•by way of an assessment.
Even better,make the provisions disappear! Prof Lynette Olivier, we need you at National Treasury and not in Academia (she will understand what I mean).The definition of effective date makes it nearly impossible for most provisional taxpayers to escape being charged interest under this section. One therefore has to question its fairness. Perhaps the effective date should be the due date (first date on the assessment).If no payment is received, the provisions of s89(2) should suffice as a remedy to non-payment.So what was the intention of s89quat? I really do not know.Perhaps I am from Mars and our ‘dear colleagues’ from Venus.
Source: By Hendrik J van Deventer (Tax TALK)