Although the facts surrounding the SCA’s decision were unique to that case, it does beg a broader question regarding a taxpayer’s right to be provided with grounds for an assessment issued under section 95 of the Tax Administration Act 28 of 2011 (TAA).
The taxpayer in this case received a large sum of money from an overseas benefactor which she declared as a donation when filing her tax return for the 2014 tax year. SARS disagreed with this and included the amount received in the taxpayer’s gross income, thus subjecting her to normal tax. The dispute between SARS and the taxpayer was resolved by agreement, and SARS issued an assessment under section 95(3) of the TAA (an assessment by agreement). This assessment by agreement is not subject to objection or appeal by the taxpayer.
Nevertheless, the taxpayer subsequently lodged an objection against this assessment. SARS refused to entertain this objection on the basis that it was issued by agreement in terms of section 95(3) of the TAA, and thus not subject to objection. Undeterred, the taxpayer proceeded to lodge an appeal with the Tax Court.
Additionally, in the Tax Court the taxpayer delivered a further notice requesting default judgment be granted against SARS. This was on the basis that SARS had failed to deliver its grounds for the assessment in dispute.
The SCA upheld the Tax Court’s decision against the taxpayer after the High Court found in favour of the taxpayer. In short, the SCA agreed with SARS that it (SARS) is bound only to consider a valid objection, and that an appeal to the Tax Court can only follow a valid objection. Finding that the assessment raised by SARS by agreement with the taxpayer was not subject to objection, the SCA found the taxpayer did not have a basis to object or appeal.
The SCA’s decision also dispensed with the taxpayer’s request for default judgment. Although the case deals specifically with a process initiated by the taxpayer, which was seemingly flawed from the beginning, and does not centre on the taxpayer’s request for default judgment, this request does raise questions regarding SARS’ obligation to provide grounds for assessments it issues.
A taxpayer’s right to reasons
As discussed in a previous alert with reference to ABSA Bank Limited v Commissioner, SARS 2021 (3) SA 513 (GP), SARS arguably takes administrative action, as defined in section 1 of the Promotion of Administrative Justice Act 3 of 2000 (PAJA), when it issues an assessment. It follows, therefore, that taxpayers enjoy a right to reasons, as contemplated in section 5 of PAJA, for SARS’ decisions.
The TAA reflects this in section 96(2) where SARS is obligated to provide a taxpayer with the grounds on which it has raised an estimation assessment in terms of section 95 of the TAA. Further, rule 6 of the rules promulgated under section 103 of the TAA (Dispute Resolution Rules), allows a taxpayer who is aggrieved by an assessment to make a request to SARS for the reasons for the assessment.
While the reasons requested in the context of review proceedings in the High Court, such as those in Absa Bank Limited, must be distinguished from a rule 6 request, the reasons are necessary to enable an aggrieved taxpayer to formulate an objection against the assessment as provided for in section 104 of the TAA. Indeed, therefore, the TAA can be seen as an empowering provision envisaged in section 5(5) of PAJA which provides a fair procedure for requesting reasons from SARS.
In practice, however, it has become more common for SARS to issue estimation assessments without providing the grounds for them, as required by section 96(2) of the TAA. In terms of recent amendments to the TAA, where an estimated assessment is issued, such assessment is only subject to objection or appeal if the taxpayer submits the relevant material (or outstanding return) required and SARS decides not to issue a reduced or additional assessment. The submission of the outstanding return or relevant material must occur within 40 business days from the date of the estimated assessment, unless SARS grants reasonable grounds for the extension. It is unclear whether a taxpayer is permitted to request reasons for such an estimated assessment or whether it should object to the assessment on the basis that it is invalid due to proper grounds of assessment not being provided.
In its Dispute Resolution Guide (Issue 2), SARS draws a distinction between grounds for an assessment under section 96(2) of the TAA and the reasons for an assessment which may be requested under rule 6 of the Dispute Resolution Rules: “The grounds for an adverse assessment by SARS should generally enable the taxpayer to understand the basis for the assessment and to object. However, if this is not the case, the taxpayer may request from SARS the reasons required to enable it to formulate its objection.”
This seems to suggest that where a taxpayer is provided with the grounds for an assessment, but is still unable to formulate an objection, it may potentially request the reasons for the assessment from SARS under rule 6 of the Dispute Resolution Rules.
Both the grounds and reasons for an assessment are there to enable an aggrieved taxpayer to formulate an objection against SARS’ assessment. However, the distinction between the two, and the possible procedural benefits of being provided with both, should not be ignored.
Therefore, where a taxpayer is aggrieved by an estimated assessment issued by SARS, and the grounds for this assessment have not been provided, the taxpayer should first consider whether it needs to submit any relevant material or an outstanding return. If this has been submitted and SARS refuses to issue a reduced or additional assessment, one can then object against the estimated assessment. The potential invalidity of an assessment, due to the absence of proper grounds of assessment, can be raised as a ground of objection. Such objection must be submitted in the prescribed form and manner set out in the TAA and Dispute Resolution Rules.