Submitting a late objection to an assessment issued by the South African Revenue Service (SARS) can have serious consequences. On May 13 2016 the Tax Court handed down judgment in AB CC v The Commissioner for the South African Revenue Service (Case 13635, as yet unreported), which dealt with the late filing of an objection by AB CC, the taxpayer, against assessments issued by SARS for the 2008 to 2011 assessment years in respect of employees' pay-as-you-earn (PAYE) tax.
The taxpayer filed a notice of objection on March 7 2013, which was outside the 30-day period allowed under the rules promulgated with regard to the Tax Administration Act (28/2011), as the assessment had been issued on September 18 2012. SARS issued a notice of invalid objection, as the objection had been lodged late and no reasonable grounds had been provided for the delay. The taxpayer then brought an appeal and the court had to decide whether SARS should have condoned the late filing.
At the time of the decision, Section 104(4) of the Tax Administration Act stated that a senior SARS official could extend the 30-day period provided for in the associated rules only if reasonable grounds exist for the delay in lodging the objection. Further, Section 104(5) stated that the period for objection must not be extended for more than 21 business days unless a senior SARS official was satisfied that exceptional circumstances had caused the delay in lodging the objection.
The taxpayer argued that because his auditors had become aware of SARS's letter of assessment (LoA) dated September 18 2012 only on December 4 2012, exceptional circumstances had caused the delay in lodging the objection. The reasons why the auditors had become aware of the LoA in December were detailed by witnesses who testified on behalf of the taxpayer.
K, a manager at the taxpayer's accounting and auditing firm, had been involved in handling the taxpayer's account, but had moved to a different department within the firm and handed the account to L. K stated that he had not received the email addressed and sent to him on September 18 2012 due to technological issues and that he had become aware of the LoA regarding PAYE only during November 2012. Although the technological issues he referred to were confirmed by the testimony of J, the person responsible for hosting the auditing firm's server, K also admitted that he had not informed L of the LoA when he had become aware of it.
L testified that he was a team leader at the taxpayer's firm. He had handled, among other things, secondary tax on companies (STC) and PAYE findings by SARS against the taxpayer since November 1 2012. He had become aware of the PAYE LoA only on December 8 2012, after he had attended a meeting with SARS on December 5 2012 regarding the taxpayer's STC objection. L initially testified that subsequent to becoming aware of the LoA on December 8 2012, he had believed that the process was ongoing from November 12 2012 and that he was seeking information from SARS's employees in order to lodge an objection. During cross-examination, L testified that the information he had been looking for had related to value added tax and STC. Based on this evidence, the court found that the information that L had sought had had no bearing on the PAYE objection and could not have prohibited him from lodging the objection at least during December 2012. One of his excuses for not doing so was that he had had to go on holiday.
The court held that L could have applied for an extension to file the objection once he had become aware of the LoA. L's evidence suggested that he had been unaware of the consequences of failing to lodge an objection within the prescribed period, which was surprising for such an experienced tax practitioner. The court noted that the officers could have been more careful and expressed surprise at the fact that L had had to be guided on the process for lodging an objection – evident from email correspondence that he had sent to SARS on February 20 2013 – which had caused unreasonable delays.
The court considered the evidence of M, a member of the taxpayer's firm, who had conceded under cross-examination that on receipt of the PAYE notices of assessment in 2012, he had done no more than hand them to his representatives. Finally, the court accepted the evidence of S, an employee of the entity that handles SARS's mailing system, who testified that the assessments in question had been dispatched to the taxpayer's email address on September 22 2012.
Based on the evidence given and Section 153(3) of the Tax Administration Act, which states that "a taxpayer is not relieved from any liability, responsibility or duty imposed under a tax Act by reason of the fact that the taxpayer's representative failed to perform such responsibilities or duties", the court held that the taxpayer had failed to prove that exceptional circumstances had resulted in the delay in lodging the objection and dismissed the appeal.
After this decision was handed down, Section 104(5)(a) of the Tax Administration Act was amended on February 19 2017. It now states that a senior SARS official must not extend the period for lodging an objection by more than 30 business days unless he or she is satisfied that exceptional circumstances exist which caused the delay in lodging the objection. When this section is read with Section 104(4), the 30-day period for lodging an objection may be extended by a senior SARS official for up to 30 business days, provided that reasonable grounds exist for doing so. An extension of more than 30 business days can be granted only if exceptional circumstances are proven. The rationale for this amendment is set out in the Memorandum on the Objects of Tax Administration Laws Amendment Bill 2016, which states that the 30-day period contained in the rules promulgated with regard to the act "has been shown to be too short in practice, particularly in complex matters, resulting in a large number of applications for condonation".
It has been widely publicised that the National Treasury is facing a budget shortfall. As such, SARS may be more aggressive in collecting tax in future. This judgment should therefore be taken seriously, as an assessment issued by SARS – whether right or wrong – must be objected against timeously, and taxpayers cannot cite the negligence of their tax practitioner to justify a late submission. This was the second judgment handed down in 2016 where a taxpayer was unsuccessful in proving that exceptional circumstances had caused its delay in lodging an objection (for further details please see "Tax decision objections and 'exceptional circumstances' – a cautionary tale").
The recent amendment to Section 104 of the Tax Administration Act has been welcomed, as taxpayers can now obtain a 30-day (instead of a 21-day) extension to submit an objection, provided that they can show reasonable grounds – although it can certainly be argued that the 30-day extension period available under Section 104(5)(a) should have been increased further.
SARS Interpretation Note 15, which was not referred to in the judgment, lists the following examples of what may constitute 'exceptional circumstances' under Section 104(5)(a):
- a natural or human-made disaster;
- a civil disturbance or disruption in services;
- a serious illness or accident; and
- serious emotional or mental distress.
In Satchwell it was noted that 'unusual facts' could constitute exceptional circumstances, although it appears that the taxpayer's failure to do more than merely send the assessments to its accounting and auditing firm, and the firm's unjustifiable delay in attending to the matter, led to the outcome in this matter.
For further information on this topic please contact Louis Botha at Cliffe Dekker Hofmeyr by telephone (+27 115 621 000) or email (firstname.lastname@example.org). The Cliffe Dekker Hofmeyr website can be accessed at www.cliffedekkerhofmeyr.com.
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