Don't change your game plan when you're in the losing corner against SARS, it won't get you out of trouble!
The facts of the case:
The taxpayer treated the sale of sand extract from his farm as capital in nature rather than revenue. When the Court said the proceeds were in fact revenue in nature, he argued that SARS should've allowed an opening stock deduction for the trading stock held at the beginning of each year.
The taxpayer lost both arguments and got no sympathy from the Court or SARS (Ernest Bester Trust v Commissioner South African Revenue Services (282/2007)  ZASCA 55).
By coming to this verdict, the Supreme Court of Appeal (SCA) confirmed e six important lessons all taxpayers must take from this case:
Lesson #1: You should never try to change the basis of your SARS objection!
You shouldn't try to do this and change your game. If you have a dispute with SARS that ends up in court, make sure you have professional assistance. Once you've misstepped, there's no recovery.
Lesson #2: Similar tax cases will have similar outcomes
You should always look at past cases. Note that you can expect a similar outcome if the facts are the same or similar to your case. In this instance, the Court had dealt with similar facts in several other cases (e.g. Samril Investments (Pty) Ltd v CSARS (2003) (1) SA 658 (SCA)), but surprisingly the taxpayer seemed to expect a different outcome.
Lesson #3: Always refer to the relevant facts
This means that you have to ensure you're referring to the relevant facts of your case when you go to court. In this case, the taxpayer's advocate came to court with six differentiating features thinking he could claim this case wasn't the same as a previous Samril case. The Courts looked at the facts that were considered in the Samril case and since those facts were similar to the facts of the taxpayer's case, this strategy didn't work.
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Lesson #4: It pays to do proper research and preparation
Have your arguments backed up by proper research and preparation. The SCA pointed out that the facts of the appeal and certain of the 'distinctions' were very similar to those in the Canadian cases of Orlando v Minister of National Revenue  CTC 108 and Minister of National Revenue v Lamon  CTC 68.
If the taxpayer and his advisors had spent the time researching past cases, they would've anticipated that the Court would never have fallen for their arguments.
Lesson #5: Get the basics right!
You should know that the taxpayer asked whether the opening stock deduction was allowable under Section 22 of the Income Tax Act. The answer is NO! This is because Section 22:
• Is merely a timing provision; and
• Has no bearing when stock is bought and sold during the same year of assessment.
Lesson #6: Don't rely on academic textbooks to win your case!
The courts aren't bound by academic textbooks – they're bound by the law! This taxpayer argued that in Silke, Income Tax it says that it's SARS 'practice' to allow a deduction for a taxpayer that has acquired trading stock for no consideration. The deduction must be the fair market value of the trading stock at the date of acquisition.
Keep in mind that SARS' norms and practices can't be dictated by the courts on the basis of a textbook, so this argument was also thrown out!