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Wednesday, November 11, 2015 - 03:16
Proposal errors

Proposals contained in the Tax Administration Laws Amendment Bill of 2015 would dramatically decrease the amount of time in which the Commissioner is permitted to issue a reduced tax assessment.

“As section 93 of the Tax Administration Act is presently worded, if a taxpayer makes an error when submitting an income tax return, and if the error is in SARS’ favour and is not in dispute, then Revenue may issue a reduced assessment to correct the error,” explains David Warneke, Director and Head of Tax Technical at BDO South Africa. “The reduced assessment may be issued within three years from the date of the assessment or further period as agreed by SARS and the taxpayer, prior to the expiry of the three-year period. The same principle, in some cases with different time limitations, applies to other types of returns submitted by taxpayers.”
For example, if the taxpayer erroneously adds a digit to an amount of income on submission of an annual income tax return and discovers the error a year later upon submission of the next year’s income tax return, SARS may issue a reduced assessment to correct the error.
Proposed amendments to section 93 of the Tax Administration Act would have the effect that in the above circumstances SARS would be powerless to issue a reduced assessment to correct the undisputed error, unless:
• The taxpayer has objected to the assessment within 30 business days of the date of the assessment. The period for objection may be extended to 51 business days if ‘reasonable grounds’ exist for the delay but not beyond that unless ‘exceptional circumstances’ exist; or
• The taxpayer requests the correction within six months of the date of the assessment. If ‘exceptional circumstances’ exist, SARS may extend the period by a maximum period of another six months.

“In the vast majority of cases, this will mean that if the taxpayer does not detect the error and formally object within 30 business days of the assessment, SARS will only be able to issue a reduced assessment if the error is undisputed and the correction is requested within six months of the date of the assessment,” explains Warneke. “By comparison, if the taxpayer understates his income in error and the error is material, SARS may issue an additional income tax assessment without any time limitation.”
He notes that this is a proposal, which will have far-reaching consequences for taxpayers if enacted. “If an error is undisputed, there is no good reason why the three-year time limitation should not be retained. It is of course only fair those taxpayers should not have to pay more tax than is due.”
There are numerous possible reasons why a taxpayer might not detect an error within six months of the date of the assessment. In addition to transposition errors, undisputed errors could relate to errors of principle: for example, assuming that an amount is taxable where it is not or that it is not deductible when it is. Because of the increasing complexity of our tax system, it is quite understandable that a taxpayer may only realise several years after SARS has issued an assessment that such an error occurred.
Insight regarding SARS’ interpretation of what might constitute ‘reasonable grounds’ and ‘exceptional circumstances’ can be obtained from SARS Interpretation Note 15, which deals with the exercise of SARS’ discretion in the case of late objections or appeals.
With regard to ‘reasonable grounds’, the Interpretation Note states that generally speaking, the requirement of reasonable grounds will be met if the delay was caused as a result of circumstances beyond the taxpayer's control. It gives as examples a delay because of illness of the taxpayer or the taxpayer’s representative, the taxpayer being abroad at the time of the issue of the notice of assessment or postal delays. It goes on to say that the taxpayer would still be required to satisfy the senior SARS official that under the specific circumstances the objection was lodged as soon as possible.
With regard to ‘exceptional circumstances’, the Interpretation Note says that section 218 of the Tax Administration Act lists what comprises exceptional circumstances in the context of the remission of penalties. It states that this provides an indication of the type of things which, taking into account the particular facts and circumstances, may constitute ‘exceptional circumstances’ and lists, among others, the following as examples:
• A natural or human-made disaster;
• A civil disturbance or disruption in services;
• A serious illness or accident; and
• Serious emotional or mental distress.

The Interpretation Note states that the mere existence of one of these factors is not sufficient and that the taxpayer would need to demonstrate that the factor was the reason for the delay.

Copyright © Insurance Times and Investments® Vol:28.11 1st November, 2015
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