This article was first published in the first-quarter 2016 edition of Personal Finance magazine.
You’ve completed your tax return on time and to the best of your ability, but the assessment you receive from the South African Revenue Service (SARS) reflects a different result from the one you expected. What are your rights?
The first step is to ascertain what has given rise to the differences between your position and the outcome reached by SARS. If you have made an error or omission on your return, or if you believe SARS has captured your information incorrectly, you can submit a Request for Correction. However, if your return has been captured correctly, but you disagree with the treatment of amounts by SARS, you must submit an objection.
The basic stages in the dispute-resolution process involve:
1. The taxpayer submitting an objection, which SARS may allow, in full or partially, or may disallow.
2. The taxpayer may then appeal against SARS’s decision to disallow any part of the original objection.
3. The appeal may proceed via the Alternative Dispute Resolution (ADR) process, a hearing by the Tax Board and/or a hearing by the Tax Court.
The process is governed by chapter nine of the Tax Administration Act (TAA), as well as the rules promulgated under section 103 of the TAA as published in the Government Gazette of July 11, 2014. These provisions and rules set out the rights and obligations of taxpayers and SARS in respect of the time limits within which the objection and appeal procedure must take place. The time period is given in business days, which are defined in a specific way for the purposes of the dispute-resolution process (see “Business days”, below).
Objection
A taxpayer is entitled to understand the basis on which an assessment was issued. This is important, because the burden of proof lies with the taxpayer (see “Burden of proof”, below). It is important, therefore, to establish at the start the reasoning on which the assessment is based. The requirement, based on case law, is that the taxpayer must establish on a balance of probability that the assessment is incorrect.
If you, the taxpayer, are unsure of the reasons for the assessment, you may submit a request to SARS to supply the reasons within 30 business days of the date of assessment. The date of assessment will be set out on the notice of assessment.
If SARS is of the view that the grounds have already been supplied, SARS is required to notify you within 30 business days, with reference to the previous correspondence that set out the reasons for assessment. Alternatively, if reasons have not been provided, SARS must provide such reasons within 45 business days, with a possible extension of a further 45 business days in exceptional circumstances, or where the matter is complex.
You must lodge the objection within 30 business days of the date of assessment, or if grounds of assessment were requested from SARS, within 30 business days of delivery of the reasons. If an objection is lodged after the due date, you may request an extension, and if reasonable grounds exist for the delay, SARS may extend the period for 21 business days, giving you 51 business days in total. If you are able to satisfy SARS that exceptional circumstances gave rise to the delay, a further extension may be granted, to a limit of three years from the date of assessment.
The correct prescribed form to use will depend on the type of tax and the stage of your dispute (see link to table at the end of this article).
For personal income tax, the Notice of Objection (NOO) form is required, which can be lodged via eFiling. The same applies to corporate income taxes. However, for trusts and for all other taxes, such as VAT and payroll taxes, donations tax and dividends tax, you are required to submit objections on form ADR1, which can be printed from the SARS website.
The requirement that you pay your tax is not suspended upon entering an objection and appeal process. The “pay now, argue later” principle applies, unless suspension of payment is applied for and received – a notoriously difficult process.
When submitting the objection, it is vital that the grounds of objection are properly formulated and set out in detail, and that all possible grounds on which you may wish to rely are included. It is possible to expand on the grounds later, but this process is itself subject to specific procedures, so it is preferable to get it right at the start. It is also important to cover all aspects of the assessment to which you are objecting, including all items giving rise to the tax in dispute, as well as objections to penalties and interest, if applicable.
Objection allowed/disallowed
SARS may require You to produce additional documents to support the objection and must notify you within 30 business days if this is the case. You then have 30 business days to deliver the supporting documentation, with a further 20 business days available on request.
In terms of the rules, SARS is required to inform you of the decision in regard to the objection within 60 business days, with a further extension of 45 business days if the matter is complex, provided SARS notifies you before the expiry of the 60-day period. If SARS requested additional supporting documents from you, the 60-day period is reduced to 45 days.
SARS may allow all or part of the objection, or may disallow the objection in its entirety. Reasons for any disallowance must be provided to you.
Appeal against disallowance
You are entitled to appeal any aspect of the objection that has been disallowed. The correct prescribed form should be used.
For personal and corporate income tax, this is the Notice of Appeal (NOA) form, which must be lodged within 30 business days of delivery of the notice of disallowance. An extension of up to 21 business days may be granted if reasonable grounds exist for the delay, and if the delay arises due to exceptional circumstances, an extension of up to 45 business days may be granted.
You may not, however, use the appeal procedure to raise new objections that were not raised in the original notice of objection. Any new objections must be lodged in terms of a new process and only if the time period to object is still open. It is possible to add a new ground or reason for the objection and appeal provided the item under appeal is one that was raised in the original notice of objection.
If applicable to the matter under dispute, you will be required to indicate whether you wish to utilise the ADR procedure. If not, the appeal may be heard before the Tax Board if the tax in dispute does not exceed R500 000 and if both SARS and you agree. Otherwise, the appeal must be heard in the Tax Court. If an appeal is not settled via the ADR process, it may still go to the Tax Board or Tax Court. A matter that is heard at the Tax Board may also be further appealed at the Tax Court.
ADR
The ADR process was introduced to achieve resolution more cost-effectively and more quickly than formal hearings before the Tax Board or Tax Court. It can take place via telephone- or video-conferencing, for example. Both you and SARS are able to reserve your respective rights, and any representations made, or documents submitted, during ADR are submitted without prejudice.
The usual course of events is that SARS appoints a facilitator (who may be a SARS official). Facilitators are required to be suitably qualified and experienced, and are bound by a code of conduct to act independently, fairly and impartially. The facilitator may not make a binding decision on behalf of either you or SARS; he or she can attempt only to persuade you and SARS to reach agreement.
Resolution by agreement
If you and SARS are able to reach agreement by way of acceptance of the other party’s interpretation of the facts, or applicable law, or both, the agreement must be recorded in writing and signed. SARS must issue a revised assessment reflecting the agreed position within 45 business days.
If some aspects of the dispute remain unresolved, you may continue to appeal those aspects to the Tax Board or Tax Court.
If ADR fails (no agreement is reached), the matter can go before the Tax Board, if appropriate, otherwise it can be heard before the Tax Court.
Resolution by settlement
If the taxpayer and SARS are unable to reach agreement, they may still attempt to settle the dispute or aspects thereof. This is a mechanism to settle on the tax payable without either party conceding as regards their interpretation of the facts and/or law. A dispute will, however, not be appropriate for settlement if:
* The matter constitutes intentional tax evasion or fraud;
* The settlement under ADR would be contrary to the law or generally prevailing practice;
* SARS is of the view that the taxpayer’s actions constitute serious non-compliance;
* It is in the public interest to have judicial clarification of the issue; or
* Pursuit of the matter through the courts is likely to promote taxpayer compliance.
If SARS and the taxpayer reach a settlement, SARS must issue an assessment to reflect the agreed position within 45 business days. Such altered assessment is final and the taxpayer may not object to the settled matters any further.
Tax Board
The Tax Board is usually a quicker route to resolution than the more formal Tax Court, and is effectively a “Tax Court lite”. The Tax Board can hear appeals only when both the taxpayer and SARS have agreed to use the Tax Board route. In addition, there is a ceiling for the tax under dispute – from January 1, 2016, it is R1 million. Either SARS or the taxpayer may take the matter further via appeal to the Tax Court if not satisfied with the decision of the Tax Board.
Tax Court
The Tax Court consists of a judge assisted by two assessors. The decision of the court is binding only on the taxpayer and SARS; it does not create legal precedent and so is not binding in respect of other taxpayers. Either party may appeal to a higher court if dissatisfied with the decision of the Tax Court. The Tax Court process is costly and time-consuming and therefore most suitable for disputes where the tax at issue is significant (many millions of rands).
The Tax Court may give an order for costs, but in fairly limited circumstances, namely:
* The SARS grounds of assessment, or decision, are held to be unreasonable;
* The taxpayer’s grounds of appeal are held to be unreasonable;
* The tax board’s decision is substantially confirmed;
* There is a request for a postponement; or
* The appeal is withdrawn or conceded after the hearing date was set.
More information
More information about the procedures and rules can be found on the SARS website. Go to: www.sars.gov.za > Legal & policy > Dispute Resolution & judgments > Individuals > What if I don’t agree? SARS has also issued a comprehensive Dispute Resolution Guide. Annexure B of the guide sets out the time periods in useful tabular form.
BUSINESS DAYS
Business days for the purposes of dispute resolution exclude the following:
* Saturdays, Sundays and public holidays; and
* The period between December 16 and January 15 (both days inclusive).
BURDEN OF PROOF
The taxpayer bears the burden of proving:
* That an amount, transaction, event or item is exempt or otherwise not taxable;
* That an amount or item is deductible or may be set-off;
* The rate of tax applicable to a transaction, event, item or class of taxpayer;
* That an amount qualifies as a reduction of tax payable;
* That a valuation is correct; or
* Whether a decision that is subject to objection and appeal under a tax act is incorrect.
The burden of proving whether an estimate assessment is reasonable, or the facts on which the South African Revenue Service (SARS) based the imposition of an understatement penalty, is upon SARS.
PAYMENT OF TAX PENDING OBJECTION OR APPEAL
Unless a senior South African Revenue Service (SARS) official otherwise directs, the obligation to pay tax will not be suspended by an objection or appeal.
As a taxpayer, you may request a senior SARS official to suspend the payment of tax or a portion thereof due under an assessment if the taxpayer intends to dispute that tax. The official has to consider:
* Whether the recovery of the disputed tax will be in jeopardy, or there will be a risk of dissipation of assets;
* Your history of complying with the tax laws;
* Whether there is prima facie evidence of fraud;
* Whether payment will result in irreparable hardship to the taxpayer not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered; or
* Whether you have tendered adequate security for the payment of the disputed tax and accepting it is in the interest of SARS or the fiscus.
A senior SARS official may deny a request or revoke a decision to suspend payment with immediate effect on the grounds that:
* The objection or appeal is frivolous or vexatious;
* You are employing delaying tactics in lodging the objection or appeal;
* On further consideration of the factors upon which the decision to suspend payment was based, the suspension should not have been given; or
* There is a material change in any of the factors upon which the decision to suspend payment was based.
* Kari Lagler is an independent tax consultant and registered tax practitioner. The information in this article is of a general nature, and readers should obtain expert advice for their specific situations.