Facts and issue to be determined
The taxpayer filed a notice of objection on 7 March 2013 which was outside the 30-day period allowed in terms of the rules promulgated in terms of the Tax Administration Act, No 28 of 2011 (TAA) (Rules). The assessment was already issued on 18 September 2012. SARS issued a notice of invalid objection as the objection was lodged late and no reasonable grounds were provided for the delay. The taxpayer then brought an appeal and the court had to decide whether SARS should have condoned the late filing of the objection
to the assessment.
The relevant legal provisions at the time of the decision
At the time of the decision, s104(4) of the TAA stated that a senior SARS official may only extend the 30-day period in the Rules if reasonable grounds exist for the delay in lodging the objection. Section 104(5) stated at the time that the period for objection must not be extended for a period exceeding 21 business days, unless a senior SARS official is satisfied that exceptional circumstances exist which gave rise to the delay in lodging the objection.
Evidence and judgment
The taxpayer argued that because his auditors only became aware of SARS’s letter of assessment (LoA) dated 18 September 2012, on 4 December 2012, exceptional circumstances existed which caused the delay in lodging the objection. The reasons for the auditors becoming aware of the assessments late were detailed by witnesses who testified on behalf of the taxpayer.
Mr K, a manager at the taxpayer’s accounting and auditing firm (Company Y), was involved in handling the taxpayer’s account, but moved to a different department within Company Y and handed the account to Mr L. Mr K stated that he did not receive the email addressed and sent to him on 28 September 2012 due to technology challenges and only became aware of the LoA regarding PAYE during November 2012. Although the technology challenges he referred to were confirmed by the testimony of Mr J, the person responsible for hosting Company Y’s server, Mr K also admitted that he did not inform Mr L of the LoA when he became aware of it.
Mr L testified that he was a team leader within Company Y. He handled, among other things, Secondary Tax on Companies (STC) and PAYE findings by SARS against the taxpayer from 1 November 2012. He only became aware of the PAYE LoA on 8 December 2012 after he had a meeting with SARS regarding the taxpayer’s STC objection on 5 December 2012. He initially testified that subsequent to becoming aware of the LoA on 8 December 2012, he believed that the process was ongoing from 12 November 2012 and that he was seeking information from SARS’s employees in order to lodge an objection. During cross-examination he testified that the information he was looking for related to VAT and STC. Based on this evidence, the court found that the information he sought had no bearing on the PAYE objection and could not have prohibited him from lodging the objection at least during December 2012. One of his excuses for not doing so was that he had to go on holiday.
The court held that Mr L could have applied for an extension to file the objection once he became aware of the LoA. Mr L’s evidence suggested that he was unaware of the consequences of failing to lodge an objection within the prescribed period, which is not what one would have expected from an experienced tax practitioner such as Mr L. The court noted that they could have been more careful and expressed surprise at the fact that Mr L had to be guided on the process for lodging an objection, which was evident from email correspondence he sent to SARS on 20 February 2013 and which caused unreasonable delays.
The court considered the evidence of Mr M, a member of the taxpayer, who conceded under cross-examination that when he received the PAYE notices of assessment in 2012, he did no more than hand the notices to his representatives. Finally, the court accepted the evidence of Ms S, an employee of the entity that handles SARS’s mailing system who testified that the assessments in question were dispatched to the taxpayer’s email address on 22 September 2012.
Based on the evidence given and on s153(3) of the TAA which states that “a taxpayer is not relieved from any liability, responsibility or duty imposed under a tax Act by reason of the fact that the taxpayer’s representative failed to perform such responsibilities or duties”, the court held that the taxpayer did not prove that there were exceptional circumstances that gave rise to the delay in lodging the objection and dismissed the appeal.
Subsequent amendments to s104 of the TAA
After the abovementioned decision was handed down, s104(5)(a) was amended and now states that a senior SARS official must not extend the period for lodging an objection by more than 30 business days, unless the senior SARS official is satisfied that exceptional circumstances exist which give rise to the delay in lodging the objection. When this section is read with s104(4), it means that the 30-day period for lodging an objection may be extended by a senior SARS official for up to 30 business days, provided reasonable grounds exist for doing so. An extension of more than 30 business days must only be granted if exceptional circumstances are shown. The rationale for this amendment is set out in the Memorandum on the Objects of Tax Administration Laws Amendment Bill, 2016, which states that the 30-day period contained in the Rules “has been shown to be too short in practice, particularly in complex matters, resulting in a large number of applications for condonation.”
Practical importance of the judgment and the amendments
It has been widely publicised that National Treasury is facing a budget shortfall and therefore it is possible that SARS, as the state entity responsible for enforcing tax legislation, will be more aggressive in collecting tax in future. The judgment discussed here should therefore be taken very seriously as an assessment issued by SARS, whether wrong or right, must be objected against timeously and the negligence of a taxpayer’s tax practitioner, cannot be used by the taxpayer to justify late submission. This is the second judgment handed down in 2016 where a taxpayer was unsuccessful in proving that there were exceptional circumstances giving rise to the delay in lodging an objection. We reported on the other judgment, handed down by Satchwell J in March 2016 (Satchwell judgment), in our Tax and Exchange Control Alert of 1 April 2016 (Section 104 of the Tax Administration Act and the meaning of exceptional circumstances – a cautionary tale).
The amendment to s104 that came into effect on 19 February 2017 is welcomed as a taxpayer can now receive a 30 day extension, instead of a 21 day extension to submit its objection provided it can show reasonable grounds, although it can certainly be argued that the 30 day extension period in s104(5)(a) should have been increased further.
SARS Interpretation Note 15, which was not referred to in the judgment, lists the following as examples of what may constitute ‘exceptional circumstances’ in terms of s104(5)(a):
- a natural or human-made disaster;
- a civil disturbance or disruption in services;
- a serious illness or accident; and
- serious emotional or mental distress.
In the Satchwell judgment, it was noted that “unusual facts” could constitute exceptional circumstances. It appears, however, that the taxpayer’s failure to do more than merely send the assessments to Company Y and Company Y’s unjustifiable delay in attending to the matter, was what led to the outcome in this matter.