Sars simply cannot have the ‘Money and the Box’

‘Money or the Box’ is a activity in which a contestant should opt for concerning the funds or an undisclosed prize in a box. In Lance Dickson Design CC v CSars a full bench of the Western Cape Large Courtroom said, in the context of understatement penalties, the South African Income Company (Sars) is not entitled to request for both the revenue and the box.

The taxpayer was appealing versus a 25% understatement penalty imposed by the tax courtroom for failing to account for funds gains tax.

Wherever there is an understatement of tax a three-stage method is contemplated.

• 1st Sars need to choose whether or not the ‘understatement’ meets the specifications of the definition in part 221 of the Tax Administration Act (TAA).
• If it meets these prerequisites Sars have to look at no matter if the understatement effects from a “bona fide inadvertent mistake.”
• If the understatement was a result of a bona fide error no penalty may be levied. If there is no error Sars must discover the ideal behavioural classification in portion 223 of the TAA less than which the taxpayer’s conduct falls.

In the existing circumstance Sars selected the group “reasonable care not taken in completing a return” which carries a 25% penalty. Sars has the onus of proving the specifics to justify the imposition of these kinds of a penalty. However, the proof of the Sars witness was that the behavioural category “no realistic grounds for tax placement taken”, which carries a 50% penalty, was a more proper behavioural group.

The courtroom held that after Sars elected to impose the 25% penalty it was necessary to establish the factual foundation for this kind of penalty.

It was popular lead to that it did not do so, Sars witness stating that a 50% penalty should really have been payable. Having preferred in its assessment to impose a 25% penalty Sars could not seek to progress a factual foundation for a 50% penalty with no revising its assessment. The reason for this is that the taxpayer ought to be specified an prospect to rethink its placement before embarking on its tax appeal. Sars cannot ask the Court for the funds and the box.

There is no demanding legal responsibility when it arrives to understatement penalties, the mere institution of a tax understatement does not give Sars a correct to impose a penalty, Sars ought to even now comply with the TAA. When Sars unsuccessful to discharge its onus in proving the 25% penalty that was the conclusion of its case. Consequently, the taxpayer succeeded with its enchantment in opposition to the 25% penalty.

Graeme Palmer is a director in the Corporate & Business Department of Garlicke & Bousfield Inc.