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FAQ - 14 April 2015

Wednesday, 15 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. What can you do if SARS didn’t transfer an old assessed loss to a future year?

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(2) An assessment withdrawn under this section is regarded not to have been issued, unless a senior SARS official agrees in writing with the taxpayer as to the amount of tax properly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 appeal.’

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 98:

‘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 areassessments 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.

2. Can SARS recover PAYE from an employee if his employer never paid it?

Q: Who is liable for employees’ tax when an employee has PAYE deducted but the company (now in liquidation) fails to pay over to SARS?

The taxpayer was under the impression his tax was being paid to SARS as he received net amount. The company director has died and it has since been discovered no taxes were paid to SARS for the past 5 months. The taxpayer is worried SARS will recover the tax from them and not try and recover it as a creditor of the company.

A: I agree with you. There are a number of provisions to consider; beginning with:

Para 4 of the 4th Schedule to the Income Tax Act, which states:

"Any amount required to be deducted or withheld in terms of paragraph 2 shall be a debt due to the State and the employerconcerned shall save as otherwise provided be absolutely liable for the due payment thereof to the Commissioner.” (own emphasis)

Furthermore, para 5(1A) states:

"The liability of the employer as contemplated in paragraph 2 must be deemed to have been discharged if the employer made payment of the outstanding employees’ tax”

The employer in your case deducted the employees’ tax but never paid it to SARS. Because it was withheld, he is absolutely liable for that tax debt. If he would not have withheld it from the employee’s salary, SARS would be empowered to recover it from the employee by virtue of applying para 5(2), which states:

"Where the employer has failed to deduct or withhold employees’ tax in terms of paragraph 2 and the Commissioner is satisfied that the failure was not due to an intent to postpone payment of the tax or to evade the employer’s obligations under this Schedule, the Commissioner may, if he is satisfied that there is a reasonable prospect of ultimately recovering the tax from the employee, absolve the employer from his liability under sub-paragraph (1) of this paragraph.”

But this is not the case since the withholding was in fact made by the employer. The tax liability thus remains with the employer.

Para 28(3)  provides further insight:

"If the Commissioner is satisfied that the amount or any portion of the amount of employees’ tax shown in any employees’ tax certificate has not been deducted or withheld by the … the employer and the employee shall be jointly and severally liable to pay to the Commissioner the amount which should not have been so applied and such amount shall be recoverable under this Act as if it were a tax.”

You will notice that the employee and employer are jointly and severally liable only if there was no withholding by the employee; which was clearly not the case.

We therefore agree with your interpretation of the law.

3. SBC – does an entity qualify if a shareholder holds an interest in a dormant company?

Q: I have a taxpayer who we applied the Small Business Corporations Tax rates to (business). SARS have rejected this taxation and taxed the business at 28% as the director appears as a director on more than one company. When enquiring from the director, he confirms that the 1 company is a non-trading property owning entity and the other company never traded and is in fact in deregistration process with CIPC. Do we have any grounds to object?

My opinion is that the objection should be allowed if an affidavit can be provided to confirm that the company he appears as a director was not trading.

A: We don’t have enough information to provide the guidance required.  The relevant law is found in section 12E(4) and the grounds of the objection should address that.  Interpretation Note: No. 9 (Issue 5) provides more detail and the current practice prevailing. 

We will some comments (limited to the points raised in your request):

We assume that SARS applied section 12E(4)(a)(ii) in this instance. The relevant parts read as follows:

(hh) any company, close corporation or cooperative if the company, close corporation or co-operative—

(A) has not during any year of assessment carried on any trade; and

(B) has not during any year of assessment owned assets, the total market value of which exceeds R5 000. 

(ii) any company, co-operative or close corporation if the company, co-operative or close corporation has taken the steps contemplated in section 41 (4) to liquidate, wind up or deregister: ...

 "...none of the shareholders ... at any time during the year of assessment of the company... holds any shares or has any interest in the equity of any other company as defined in section 1(1), other than...” the approved ones.  The two ‘approved ones’ that may be relevant to your request are:

The objection will then have to address, in respect of the "non-trading property owning entity”, that the total market value of assets didn’t exceed R5 000.  With respect to the one being deregistered it must be proved that the steps contemplated in section 41(4) to liquidate, wind up or deregister were in fact taken.  Both of these are factual issues and an affidavit will not suffice.  Refer to section 102(1)(c) of the Tax Administration Act. 

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



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