INTRODUCTION
On 1 October 2012, the Tax Administration
Act, No 28 of 2011 (‘the TAA’) came into force.
As a result of the commencement of the TAA, several sections of the
fiscal statutes were repealed and replaced by corresponding provisions in the
TAA.
The primary purpose of the changes
is to consolidate existing tax administration legislation into a single, more
comprehensive statute, which will, hopefully, ensure that tax administration is
managed more efficiently and effectively.
It is important that taxpayers are aware of the changes introduced as a
result of the TAA, particularly insofar as it relates to the objecting of
assessments issued by the Commissioner: SARS.
It must be noted that the TAA applies to all taxes administered by the
Commissioner, other than customs and excise.
Therefore, what is stated below will apply to assessments issued to
taxpayers for income tax, value-added tax and other taxes also.
THE DATE BY WHEN AN OBJECTION SHOULD BE
LODGED AGAINST AN ASSESSMENT
One of the important changes brought about
by the TAA relates to the definition of ‘date of assessment’, the importance of
which relates to tax dispute resolution.
Previously, section 81(1) of the Income Tax
Act, No 58 of 1962, as amended (‘the Act’), stated the following:
“Objections to any assessment made under this
Act shall be made in the manner and under the terms and within the period
prescribed by this Act and the rules promulgated in terms of section 107A by
any taxpayer who is aggrieved by any assessment in which that taxpayer has an
interest.”
Rule 4(e) of the Rules promulgated under
section 107A of the Act, prescribing the procedures to be observed in lodging
objections and noting appeals against assessments (‘the Rules’) states:
“a taxpayer who is aggrieved by an assessment
may object to an assessment, which objection must –
(e) be delivered to the Commissioner at the addressed
specified in the assessment for this purpose, within 30 days after –
in the case
where the taxpayer has requested reasons under rule 3, either the date of the
notice by the Commissioner that adequate
reasons or the date the reasons were furnished by the Commissioner, as the case may be, or;
in any other
case the date of assessment.”
The Rules themselves do not define the
meaning of the words ‘date of assessment’, and it is necessary, therefore, to
refer to the definition section contained in section 1 of the Act, which
defines the terms as follows:
“in relation to any assessment, means the date
specified in the notice of such assessment as the due date, or, where a due
date is not so specified, the date of such notice.”
Lastly, the meaning of ‘day’ in the
definition section contained in section 1 of the Rules means:
“a day as contemplated in section 83(23) of
the Act.”
Section 83(23) of the Act defines ‘day’ as:
“any reference in this Part and the Rules to
‘day’ means any day other than a Saturday, Sunday or public holiday: provided
that the days between 16 December of a year and 15 January of the following
year, both inclusive, shall not be taken into account in determining days or
the period allowed for complying with any provision in this Part or the rules.”
In addition, paragraph 6.1 of SARS Guide on
Tax Dispute Resolution (‘SARS Guide’) sets out when an aggrieved taxpayer may
object to an assessment. It refers to
the definition of ‘date of assessment’ contained in section 1 of the Act and
thereafter states the following:
“Please note that where an assessment has a
‘date of assessment’ on the assessment form, as well as a due date and a second
date, the 30-day period must still be calculated with reference to the due
date, in accordance with the definition of ‘date of assessment’ in the
Act. The ‘date of notice’ or ‘date of
assessment’ only applies where there is no ‘due date’ on the notice.”
The SARS Guide provides an example,
summarised in the table below, and which provides clarity on the matter:
Date of Notice:
|
29/09/2003
|
Due Date:
|
03/11/2003
|
Second Date:
|
28/11/2003
|
In the above example, the objection must
be filed within 30 days after 03/11/2003 of the ‘due date’, that is, by 15
December 2003.
The tax due must be paid before
28/11/2003 (the “second date’).
|
THE DEFINITION OF ‘DATE OF ASSESSMENT’ AND
DISPUTE RESOLUTION UNDER THE TAA
The TAA has repealed section 81 of the Act,
and, hence, objections and appeals against assessments issued by SARS are now
governed by section 104 of the TAA.
Section 104(3) of the TAA directs that an objection to an assessment or
decision must be lodged in the manner and within the time periods prescribed in
the ‘Rules’.
The aforementioned Rules
have not yet been published by Public Notice in terms of section 103 of the
TAA, and, thus, until such time as they are, the old Rules promulgated under
the Act remain the relevant Rules in terms of section 264(2) of the TAA.
As pointed out above, there is no
definition of ‘date of assessment’ in the ‘old Rules’. It is, therefore, necessary to consider the
definitions contained in the TAA, which took effect on 1 October 2012. Section 1 of the TAA defines ‘date of
assessment’ as follows:
“(a) in
the case of an assessment by SARS, the date of the issue of the notice of
assessment;”
Based on the above, the period granted for
the submission of an objection has changed, and has been reduced.
Now, by referring to the example contained in
the table above, the objection must be filed 30 days after 29 September 2003,
that is, by 7 November 2003, which is a reduction of the time allocated for the
submission of the objection of over a month.
Were a taxpayer unaware of this change and thus follow the old rules in
conjunction with the old definition of ‘date of assessment’, they would have to
seek condonation for the late filing of the objection, which is unlikely to be
continuously entertained by SARS on the basis of ignorance of the law. The example shows the importance of this
amendment to the fiscal provisions, and is important for all parties,
especially taxpayers and their advisors, to ensure that they are aware of the
changes that the TAA has introduced, and to seek advice where uncertainty
arises.
Where the taxpayer has been subjected to an
audit, the Commissioner will, in most cases, issue a letter advising that the
taxpayer’s taxable income is being amended.
Often, these letters are referred to as a letter of assessment, and, if
the letter complies with the definition of assessment contained in section 1 of
the TAA, read together with paragraph 23(a) of Schedule 1 to the TAA, the
taxpayer must object within thirty days of the date of the letter of
assessment. In this regard, see the
decision of the Court in C:SARS v South
African Custodial Services (Pty) Ltd [2012] 74 SATC 61.
GROUNDS OF OBJECTION
Where the taxpayer decides that the reasons received from SARS adequately set out the basis on which the assessment has been issued, the taxpayer must lodge a proper notice of objection setting out the grounds of the objection. Clearly, in the event that the reasons received are inadequate, a taxpayer is entitled to call for adequate reasons in terms of Rule 3(1)(a) of the Rules governing dispute resolution.
Where the taxpayer decides that the reasons received from SARS adequately set out the basis on which the assessment has been issued, the taxpayer must lodge a proper notice of objection setting out the grounds of the objection. Clearly, in the event that the reasons received are inadequate, a taxpayer is entitled to call for adequate reasons in terms of Rule 3(1)(a) of the Rules governing dispute resolution.
It is important that the taxpayer
formulates their grounds of objection in detail and sets out the basis on which
they dispute the assessment issued by the Commissioner.
A question that is often asked by taxpayers
disputing an assessment is the detail which must be contained in the letter
objecting to the assessment issued by the Commissioner. It is important that the objection sets out
the basis on which the taxpayer challenges the assessment issued by the
Commissioner. The question that arises
is whether a taxpayer may later expand upon the grounds of objection.
In ITC
1843 [2010] 72 SATC 229, the Court was required to determine whether the
Commissioner was entitled to raise a new ground of assessment at the time when
the Rule 10 statement setting out the Commissioner’s grounds of assessment was
being issued to the taxpayer.
Claasen J
reviewed the Rules governing objections and appeals and decided that it was
competent for the Commissioner to advance new grounds of assessment which had
previously not been communicated to the taxpayer in the process leading up to
the amended assessment issued to the taxpayer.
The Court decided that, just as the Commissioner is entitled to modify
his grounds of assessment in the Rule 10 statement to be issued to the
taxpayer, the taxpayer would also be entitled to expand on and vary the grounds
of objection contained in their letter of objection when the time arrived to
finalise the grounds of appeal comprising the taxpayer’s Rule 11 statement
setting out the grounds of appeal.
The Court, therefore, reached the
conclusion that the Commissioner could add new grounds to its Rule 10 statement
of grounds of assessment, and that there could be no prejudice to the taxpayer,
on the basis that Rules 10 and 11 were interpreted in the manner contained in
the judgment because of the built-in safeguards which were available to a
taxpayer to vary their grounds of objection in their statement of grounds of
appeal, regulated by Rule 11.
However, more recently, in the case of HR Computek (Pty) Ltd v The Commissioner for
the South African Revenue Service, as yet unreported (case number
830/2011), where judgement was delivered by the Supreme Court of Appeal on 29
November 2012, the Court decided that the taxpayer is limited to the grounds
stated in their notice of objection.
Unfortunately, Ponnan JA did not refer to the decision of Claasen J handed
down in 2010 in ITC 1843.
The Supreme Court of Appeal reached the
conclusion that, by virtue of the fact that the taxpayer had not raised an
objection to the principal amount of VAT in its notice of objection, the
taxpayer was precluded from raising it on appeal before the Tax Court.
The Court reached the conclusion that, when
the taxpayer challenged the capital amount of the value-added tax reflected as
payable for the first time in its Rule 11 statement, it effectively raised a
new objection against an individual assessed amount that had not previously
been objected to.
The Supreme Court of
Appeal, therefore, concluded that, in terms of section 32(5) of the Value-Added
Tax Act, No 89 of 1991, as amended, because no objection had been lodged
against SARS’ assessment, the taxpayer was liable to SARS for the additional
VAT output tax amounting to R1,246,177.60, and that the assessment issued
became final and conclusive in April 2007.
Thus, the Supreme Court of Appeal held that the taxpayer’s appeal must fail,
on the basis that it was not competent to amend the grounds of objection set
out in the earlier letter of objection when the time came to prepare the Rule
11 statement of grounds of appeal. This
decision would appear contrary to that of Claasen J.
If the taxpayer is to be bound to their grounds
of objection, following the decision of the Supreme Court of Appeal, the
Commissioner must also be bound to the reasons supplied in the grounds of
assessment notified to the taxpayer at the time that the assessment is
issued.
It would be most iniquitous if
the taxpayer cannot vary the grounds of objection, whereas the Commissioner is
entitled to supplement the basis on which the assessment was issued to the taxpayer.
It remains to be seen if the anomalies
arising between ITC 1843 and the
Supreme Court of Appeal’s decision in Computek will be reconciled when the new
Rules governing objections and appeals are finalised under the provisions of
the TAA.
CONCLUSION
Taxpayers wishing to dispute an assessment
issued by the Commissioner must lodge the objection within the time allowed,
or, alternatively, request adequate reasons for that assessment, and, should
they fail to meet the time periods prescribed, they will need to call for condonation for the late
submission of the objection. It is
important that the objection lodged against the assessment sets out in detail
the grounds on which the taxpayer seeks to rely in challenging the assessment
issued by the Commissioner.
DR BERIC CROOME Tax Executive Edward Nathan
Sonnenbergs Inc.
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