OPINION | Why SARS is misrepresenting misrepresentation | Business

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SARS has a misunderstanding on many levels of what misrepresentation involves, writes Ernest Mazansky.

As every taxpayer knows, SARS has extremely wide powers under the various fiscal acts to enforce and collect tax. One of the protections given to taxpayers is that, in the case of income tax, an additional assessment may not be raised after three years, while in the case of self-assessed taxes, such as PAYE and VAT, SARS is given five years within which it may raise additional assessments, after which it is prohibited from doing so.

So, for example, whereas generally speaking, if shares in a South African company are held for more than three years the proceeds are deemed to be of a capital nature. If they are held for less than three years, they are deemed to be of a revenue nature, but the ordinary, common law rules apply in determining the capital or revenue nature of the receipts and, hence, whether the profit should be taxed as ordinary income or be subject to CGT.

Take the example given above in relation to a sale of an asset and whether the proceeds are of a capital or revenue nature. The courts have determined a number of tests, and possibly the most important test is whether or not the asset was acquired with a view to resale in a scheme of profit-making. This involves very much the intention of the taxpayer, which is also a question of fact, and also various other criteria.

In such case SARS will argue that it is relying on misrepresentation because the taxpayer misrepresented the profit as being of a capital nature rather than of a revenue nature. And here is the very problem: whether or not, based on the facts, a profit is of a capital or revenue nature is not a question of fact – it is a question of law, as the courts have stated. Therefore a taxpayer cannot misrepresent the law to SARS – the latter is as capable of interpreting the law as is the taxpayer.

 

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