Income Tax Audit

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Income Tax Audit

• 27 September 2024
• Accounting & Financial Reporting
• Marita Jordaan

This article is based on tax law for the year ending 28 February 2025.

1. Factual Background

We discovered errors in the calculation of capital gains during an income tax audit by SARS for the 2020 and 2021 tax years. The capital gains relate to the 2020 and 2021 years of assessment. 

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2. The Problem / Facts

1. Are the SARS auditors obligated to consider our request for reduced assessments in their audit findings?
2. Should we submit requests for reduced assessments under Section 93(1)(d) before the prescription dates, rather than waiting for the auditor's conclusion?

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3. Applicable Law 

TAA 28 of 2011, section 93, 99

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4. Application of the Law to the Facts

Section 99(2)(2)(a)(iii) provides that prescription does not apply when there has been a non-disclosure of material facts. In the situation you described, it is likely that SARS could rely on this provision to prevent prescription from applying, if all else fails.

The taxpayer disclosed the relevant information to SARS during the audit, as explained. It is expected that SARS will take this submission into account during the verification process and make any necessary adjustments. If you are dissatisfied with the assessment, you have the option to file an objection.

It is understood that when SARS conducts a verification, the assessment only becomes effective from the date SARS issues an additional or reduced assessment, as supported by SARS's notification that the assessment has been finalised. Prescription should therefore begin from that date. The verification indicates that SARS has not yet made a final determination, meaning the initial assessment is not yet a conclusive determination of the taxes. This will only be confirmed when an additional or revised assessment is issued, or when a letter confirming that the verification has been completed is sent.

The auditor  in specific is not compelled to consider a reduced assessment request but SARS is compelled to do so. In other words, someone in SARS must look at it – generally s93(1)(d) requests are heard and decided by a committee.  

In terms of prescription, Section 99(2)(a) applies solely in favour of SARS, and a taxpayer should not rely on this provision to require SARS to act in the taxpayer’s favour after the prescription period due to non-disclosure. This provision only comes into effect when the full amount of tax has not been assessed.

However, taxpayers can rely on s99(2)(d)(iii). Since you informed the auditor of the mistake before the assessments prescribe, SARS should be willing to reduce the assessment even if three years have lapsed from the date of the assessment. In other words, if they do not allow your request as part of the audit assessments and you need to engage with them outside the audit to reduce the CGT assessment after prescription.

It is recommended that you formally submit a request for a reduced assessment via the RRA01 form before the assessments prescribe and provide proof of submission to the auditor. Even though there was previously no formal way to request a reduced assessment under s93(1)(d), and SARS might argue that such a request had to be submitted before prescription, you should still file the RRA01 form to strengthen your reliance on s99(2)(d)(iii) if they don’t allow your request as part of the Audit.

Additionally, ensure that your formal request, including the RRA01 form and supporting documents, be thoroughly drafted, with clear arguments and relevant proof provided to demonstrate why the CGT was overstated. If this is not done correctly, SARS may still argue that they were not made aware of an error that was “readily apparent” before the assessment prescribed.

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