‘Cash or the Field’ is a recreation the place a contestant should select between the cash or an undisclosed prize in a field. In Lance Dickson Building CC v CSars a full bench of the Western Cape Excessive Court docket mentioned, within the context of understatement penalties, the South African Income Service (Sars) just isn’t entitled to ask for each the cash and the field.
The taxpayer was interesting in opposition to a 25% understatement penalty imposed by the tax court docket for failing to account for capital positive factors tax.
The place there may be an understatement of tax a three-phase course of is contemplated.
- First Sars should resolve whether or not the ‘understatement’ meets the necessities of the definition in part 221 of the Tax Administration Act (TAA).
- If it meets these necessities Sars should contemplate whether or not the understatement outcomes from a “bona fide inadvertent error.”
- If the understatement was a results of a bona fide error no penalty could also be levied. If there is no such thing as a error Sars should establish the suitable behavioural class in part 223 of the TAA beneath which the taxpayer’s conduct falls.
Within the current case Sars selected the class “affordable care not taken in finishing a return” which carries a 25% penalty. Sars has the onus of proving the information to justify the imposition of such a penalty. Nonetheless, the proof of the Sars witness was that the behavioural class “no affordable grounds for tax place taken”, which carries a 50% penalty, was a extra acceptable behavioural class.
The court docket held that after Sars elected to impose the 25% penalty it was required to show the factual foundation for such penalty.
It was frequent trigger that it didn’t achieve this, Sars witness stating {that a} 50% penalty ought to have been payable. Having chosen in its evaluation to impose a 25% penalty Sars couldn’t search to advance a factual foundation for a 50% penalty with out revising its evaluation. The rationale for that is that the taxpayer have to be given a possibility to rethink its place earlier than embarking on its tax attraction. Sars can not ask the Court docket for the cash and the field.
There isn’t a strict legal responsibility in relation to understatement penalties, the mere institution of a tax understatement doesn’t give Sars a proper to impose a penalty, Sars should nonetheless adjust to the TAA. As soon as Sars didn’t discharge its onus in proving the 25% penalty that was the tip of its case. Due to this fact, the taxpayer succeeded with its attraction in opposition to the 25% penalty.
Graeme Palmer is a director within the Company & Business Division of Garlicke & Bousfield Inc.