Estimated assessments: challenging SARS

Estimated assessments: challenge the calculation and prove the alternative

27 October 2026
Tax Dispute Resolution
Dr Stiaan Klue

Source: Monthly Tax Update, Professor Jackie Arendse, October 2026. Webinar-on-Demand: Monthly SARS Update with Prof Jackie Arendse - October 2026

At a glance

Issue	Finding in TPS	Consequence for practice
Estimate	The final income-tax estimate was upheld.	Engage with the revised methodology actually assessed.
Evidence	Procedural criticism did not establish the correct taxable amounts.	Reconcile deposits and produce a supported alternative computation.
VAT	The VAT assessment still reflected an abandoned methodology.	Test each tax type independently.
Order	Income tax confirmed; VAT set aside and remitted; each party bore its own costs.	Describe the mixed result accurately.

An estimated assessment is vulnerable if its methodology is unreasonable. That does not relieve the taxpayer of the need to prove the tax treatment of the underlying transactions. TPS v Commissioner for the South African Revenue Service illustrates both propositions—and the importance of checking whether income-tax and VAT assessments have been recalculated consistently.

The practical task for the tax accountant is to convert criticism into evidence. A useful objection identifies the disputed assumption, explains why it fails and supplies a transaction-level alternative. A complaint that the audit was badly conducted may be relevant, but it does not, without more, establish which receipts were taxable or which expenses were deductible.

Follow the estimate that survived the audit

The dispute concerned additional assessments for the 2014–2019 years, following income-tax and VAT audits during 2019 and 2020. The South African Revenue Service (SARS) used bank information in developing its estimates. Questions arose about the treatment of gambling receipts, loans and interbank transfers, and about the ratio used in the initial methodology.

The first approach did not simply pass through SARS unchanged. Its Large Assessment Committee rejected the methodology on 28 September 2020. A revised approach was approved on 29 January 2021, followed by the final income-tax assessment of 2 March 2021. That sequence is important because the taxpayer’s substantive challenge had to engage with the revised calculation, not merely defects in the original one.

In practice, the audit file should contain a version-controlled bridge from the first proposal to the final assessment. It should show which deposits were removed, which ratios changed, which expenditure was allowed and whether those changes flowed through every affected year and tax type. Without that bridge, an objection may attack a methodology SARS has already abandoned while missing an error in the operative assessment.

Client conversation trigger: For clients assessed using bank deposits or turnover ratios, obtain the final calculation and reconcile it to every earlier audit version before settling the grounds of objection.

The burdens of proof operate together

Section 95 permits an estimate in the circumstances prescribed by the Tax Administration Act. The estimate must be grounded in information available to SARS. Under section 102(2), SARS bears the burden of proving that an estimate is reasonable. The taxpayer’s burdens concerning matters such as non-taxability and deductions remain relevant under section 102(1).

The Tax Court emphasised its function in determining the correct assessment. Its enquiry was not confined to whether the auditor had followed a perfect process. Once the reasonableness of the estimate was established, the taxpayer needed evidence to show why the resulting amounts were wrong. Bank records within the taxpayer’s reach could have substantiated the asserted treatment of receipts, but the necessary proof was not produced.

This should not be overstated as a rule that procedural unlawfulness is irrelevant. A procedural objection may require its own remedy and forum. The narrower point is that an assessment appeal must address the issues falling within it and support the proposed tax result. The written judgment principally addresses estimation, evidence and the separate VAT defect.

Client conversation trigger: Where a client wants to contest an assessment solely because of audit conduct, separate the procedural complaint from the evidence needed to prove the correct tax liability.

Build the alternative from transactions

A bank-deposit analysis should classify each material credit by legal character, with documents supporting that classification. Transfers between the client’s own accounts should match on both sides. Loan receipts should be connected to the agreement, lender and repayment record. A sales receipt should be traced to the invoice, ledger and relevant period. Unexplained credits should remain visible as unresolved items rather than disappear into a balancing figure.

Assume a bank account receives R2.4 million: documented sales of R1.5 million, a supported loan of R600,000 and matched transfers of R300,000. Treating the full R2.4 million as sales would ignore R900,000 requiring separate characterisation. But reducing a sales estimate to R1.5 million is defensible only if the records substantiate the classifications. This is an evidence illustration, not a finding in TPS or a universal tax treatment of every loan-related receipt.

The same discipline applies to expenditure. A lower turnover estimate does not automatically validate every expense, and a reconciliation should explain accounting adjustments, timing differences and tax disallowances. A reviewer should be able to move from source document to ledger, return and proposed revised assessment without relying on an unexplained spreadsheet total.

Client conversation trigger: Ask assessed clients to authorise reconstruction of the disputed bank transactions, with missing-document exceptions identified before the objection is finalised.

VAT required its own correction

SARS had revised the income-tax calculation but had not brought the VAT assessment into line with that revision. The court set aside the VAT assessment dated 18 September 2020 and remitted it for recalculation on the basis of the final income-tax assessment issued on 2 March 2021. The income-tax assessment was confirmed, and each party was ordered to bear its own costs.

This does not mean that taxable income and VAT consideration are interchangeable. Their statutory bases, timing and exclusions differ. The defect was the continued use of a superseded factual methodology. The required reconciliation should therefore explain both common factual inputs and legitimate differences between taxes.

The broader control is straightforward: every audit adjustment affecting sales or receipts should be checked across income tax, VAT and the accounts, with differences explained rather than forced to agree. A remittal also needs follow-through. The replacement calculation should be checked against the court’s order instead of being treated as an administrative formality.

Client conversation trigger: Where SARS changes an income-tax turnover estimate, review the related VAT assessments and verify that any retained differences have a proper legal and factual basis.

Practitioner action checklist

#	Area	Finding or requirement	Clients affected	Action required	Deadline
1	Final methodology	SARS revised its original approach.	Estimated-assessment clients	Obtain final schedules and an audit-version bridge.	Before objection
2	Evidence	Assertions did not displace the estimate.	Clients with disputed deposits	Reconcile every material credit and retain proof.	Within the applicable dispute timetable
3	Legal route	Merits and procedural remedies differ.	Clients alleging unlawful audits	Identify the remedy and required evidence with advisers.	Before choosing proceedings
4	VAT	The superseded calculation survived in VAT.	Multi-tax audits	Reconcile common inputs and tax-specific differences.	On each assessment
5	Remittal	Recalculation must implement the order.	Successful remittal applicants	Review replacement assessments against the judgment.	On issue

Official source: Tax Administration Act 28 of 2011 (South African Government).

Frequently asked questions

Who must prove that a SARS estimated assessment is reasonable?

Under section 102(2) of the Tax Administration Act, SARS bears the burden of proving that an estimate is reasonable. The taxpayer’s burdens on non-taxability and deductions under section 102(1) remain relevant.

Is it enough to show that the SARS audit was badly conducted?

No. Procedural criticism did not establish the correct taxable amounts in TPS. A useful objection identifies the disputed assumption and supplies a transaction-level alternative computation.

Should the VAT assessment change if the income tax estimate changes?

Check it. In TPS the income tax assessment was confirmed, while the VAT assessments were set aside and remitted because they required their own correction.

Build your expertise: to apply these principles in practice, explore The Tax Faculty’s SARS Dispute Resolution: A Focus on Objections and Appeals webinar on demand.

About the author

Dr Stiaan Klue is Executive Dean and CEO of The Tax Faculty. He was the founding CEO of the South African Institute of Taxation (SAIT) and is the founding author of Silke on Tax Administration (LexisNexis).

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