Procedure is everything

Procedure is everything

• 04 May 2018
• Corporate Tax
• Louis Botha

Important:

This article is based on tax law for the tax year ending 28 February 2020.

Author: Louis Botha
 

Procedure is everything: A win for the taxpayer and the importance of the right to just administrative action

 In recent times, taxpayers have often been unsuccessful in their disputes with the South African Revenue Service (SARS), especially where the dispute involved the interpretation or application of the substantive provisions of tax legislation. However, where disputes have involved compliance with the procedural requirements of tax legislation, taxpayers have generally had greater success. The judgment in Mr A v The Commissioner for the South African Revenue Service (Case No. IT13726) (as yet unreported), falls into the second category and is the subject of this article.

Facts

The taxpayer, Mr A, had been the chief executive officer of a company for just over 16 years, when his employment with the company ended in 2012. When the taxpayer’s services came to an end, the company paid him R7,066,530 as an amount equal to a severance package calculated in accordance with the company’s retrenchment policies. He declared the amount and described it as a “lump sum payment for separation package” in his 2012 income tax return. SARS did not accept that the lump sum payment was taxable as a retrenchment benefit and taxed it as “other” income instead. The taxpayer also traded as a cattle farmer and in his 2012 income tax return, he claimed farming expenses of R1,781,604 as a deduction, which SARS disallowed.

SARS issued two additional assessments (Assessments) pursuant to its decisions and the taxpayer subsequently objected and appealed against the Assessments. The parties agreed that only the following two issues would be argued before the Tax Court:

•  As a point in limine (preliminary point), whether the audit conducted prior to the additional assessment was valid, and whether the subsequent additional assessment was valid; and

Whether the lump sum payment received by the taxpayer at the termination of his employment was a “severance benefit” as defined in the Income Tax Act, No 58 of 1962 (Act).

The parties agreed that the issue pertaining to the deduction of farming expenses would stand over for argument at a later stage. In this article, we will focus only on the first issue argued before court, regarding the validity of the audit.

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This article first appeared on cliffedekkerhofmeyr.com.

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