Taxpayers who are aggrieved by an assessment may object to it. Should an objection be disallowed, an appeal may also be pursued. Objections and appeals are governed by the provisions of Chapter 9 of the Tax Administration Act and the Rules promulgated under section 103 of the Tax Administration Act (the Rules).
Chapter 9 and the Rules subject objections and appeals to specific timeframes and requirements. One such timeframe is that an objection must be lodged within 30 business days from the date of the relevant assessment or decision, unless a senior SARS official is satisfied that reasonable grounds exist for the delay in lodging the objection or, in the case of a delay of more than 30 business days, that exceptional circumstances exist which gave rise to the delay in lodging the objection.
Taxpayers are often unaware of the relevant timeframes or may only realise their aggrievement once the time for lodging an objection has passed. As ignorance of the law is not regarded as a reasonable excuse, those taxpayers are effectively barred from objecting, regardless of the merits of their case.
What then is a taxpayer to do who discovers an obvious error in an assessment which resulted in the overpayment of tax? Fortunately, the Tax Administration Act allows SARS to issue a reduced assessment if it is satisfied that there is a readily apparent undisputed error in an assessment by SARS or by the taxpayer in a return. This concession is subject to the prescription rules contained in the Tax Administration Act, which means that, in the case of an original assessment relating to income tax, such a reduced assessment cannot be issued by SARS more than three years after the date of the original assessment. The meaning of the phrase “readily apparent undisputed error” has been subject to much debate and was recently the focus of a SARS Draft Interpretation Note (the Draft Note) which is currently open for public comment.
The Draft Note contains insight into SARS’s interpretation of the law, which (though not binding) is useful information for taxpayers. A welcome part of the Draft Note is SARS’s apparent recognition that it does not enjoy an unfettered discretion and must base its decision on reasonable grounds. In the Draft Note SARS also elaborates on the meaning of the words used in the section:
- Readily apparent – which SARS interprets as meaning an obvious mistake that should be easily determinable.
- Undisputed – in respect of which SARS notes that the confirmation of the error should require no more than a simple verification and not be of an interpretational nature.
- Error – which SARS argues is limited to an error by a taxpayer in a return and excludes omissions.
A curious proposition made in the Draft Note is that errors do not include omissions, which SARS purportedly bases on the ordinary meaning of the word “error”. This is an overly narrow interpretation of the word “error” and runs contrary to the purpose of the section, which is to allow taxpayers a less formal mechanism to request corrections for obvious mistakes. Something can be obviously wrong due to an error of omission just as much as an error of commission. This view held by SARS also runs contrary to its past practise as reduced assessments have on occasion been issued in respect of omissions that constituted readily apparent undisputed errors.
SARS further states in the Draft Note that the remedy is limited to errors in an assessment or return and gives the example of an incorrect amount reflected on a section 18A receipt issued by a public benefit organisation (PBO). In the example the taxpayer, having submitted a return reflecting the incorrect amount, requests a reduced assessment after the PBO reissues the receipt reflecting the correct amount. According to the Draft Note, the request will be rejected as the error was in the supporting documentation and not in the return. With respect, what the Draft Note fails to appreciate is that the example contains two errors - the original error in the receipt issued by the PBO which led to the subsequent error in the return completed by the taxpayer. Based on the reissued receipt obtained from the PBO, it is submitted that the error in the return should be readily apparent and undisputed, therefore qualifying for relief.
A decision by SARS not to issue a reduced assessment is not subject to objection or to appeal. If unsuccessful, a taxpayer may request an internal review of the decision under section 9 of the Tax Administration Act by inter alia a senior SARS official. A taxpayer may further take SARS’s decision on review to the High Court. Needless to say, High Court applications can be very costly.
A request for a reduced assessment can be a useful tool for taxpayers where there is an obvious error in an assessment by SARS or the taxpayer in a return. However, taxpayers should be mindful of SARS’s recently narrowed view of this remedy, particularly around omissions. It will be interesting to see if SARS’s view will not be swayed by taxpayer submissions on the Draft Note. Where possible, taxpayers may rather opt to object to assessments containing errors and are advised to do so with the help of their tax adviser.