A company was registered on 27/9/2017, with a December year end. The company traded for 3 months during the 2017 year. Annual financial statements were prepared for the 15 months ended 31 December 2018, and those were submitted to SARS, and the tax was pa
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Firstly, please don’t refer to interpretation notes as practice notes. Practice notes have been systematically withdrawn and replaced by interpretation notes for some years now. Interpretation Note 90 is the document you have in mind. As I will explain below, it doesn’t assist your client. Secondly, whatever the Companies Act provides in regard to year ends is irrelevant where income tax is concerned.
Now we deal with the relevant provisions of the Income Tax Act, namely section 66 and in particular subsections 913) and (13A):
Relevant tax law “(13) The return for normal tax to be made by any person in respect of any year of assessment shall be a return- (a) in the case of a person (other than a company), for the whole period of twelve months ending upon the last day of February”…(b) in the case of a company, for the whole period of the relevant financial year of that company, comprising the year of assessment…”
“(13A) Where- (a) it is established to the satisfaction of the Commissioner that the whole or any portion of the income of any person to whom the provisions of subsection (13)(a) apply cannot be conveniently returned for any year of assessment, the Commissioner may, subject to such conditions as he or she may impose, accept accounts in respect of the whole or a portion of the taxpayer’s income drawn to a date agreed to by the Commissioner, whether for a longer or shorter period than the year of assessment under charge, and the income disclosed in any such accounts must be deemed to be income of that person in respect of the year under charge”.
Note that subsection (13A) does not apply to companies – and would probably not be relevant in any event to the present matter. But subsection (13)(b) does apply and reflects what SARS has demanded of your client. The 2018 financial statements cover two years of assessment, namely 2017 (for three months) and 2018 (for 12 months). SARS is entitled to ask for two separate returns. The only concession the taxpayer may request is an agreed way to apportion the income between the two years of assessment if it’s too difficult to determine a precise position as at 31 December 2017.