Six Important lessons to keep you out of the SARS 'dog box'!
Don't change your game plan when you're in the losing corner against SARS, it won't get you out of trouble.
Here's a case that has six important lessons all tax payers can learn from - and even though the case is from 2007/8, the lessons are still relevant today!
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).
The Supreme Court of Appeal (SCA) confirmed these six important lessons all taxpayers must take from this case:
SARS has issued correspondence for your VAT audit; it requires your immediate attention
The words 'VAT audit' send shivers down most VAT payer's spines...
Once you've gotten over the shock that your company's been chosen for a VAT audit, you have to wait for that dreaded day to arrive where you'll spend hours on end sitting with auditors or running around to search through accounts, VAT returns and audit trails.
This isn't only time consuming, it's a downright nerve-racking experience!
Now imagine, only 20 minutes into the audit the team finds a mistake that you made two years ago. Because you don't know what to expect, you start doubting whether or not all your VAT papers are compliant!
Put those fears to bed today!
Lesson #1: Never try to change the basis of your objection!
This is the most important lesson of all! If you have a dispute with SARS that ends up in court, make sure you have professional assistance. Once you've miss-stepped, there's no recovery.
Lesson #2: Similar cases will have similar outcomes
Always look at past cases. 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
Make sure 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 the 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: Proper research and preparation pays
Back your arguments up with 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!
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:
Lesson #6: Don't rely on academic textbooks to win your case!
is merely a timing provision; and
has no bearing when stock is bought and sold during the same year of assessment.
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.
The reality is 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!
Changes to tax law you WON'T hear about in the news...
There are going to be a lot of tax questions that will need answering this year...
In the coming months the tax law will undergo a number of significant changes.
The majority of these will affect the duties of tax professionals and, in particular, their liability for offences committed under their watch.
But you won't hear about these changes on the six o'clock news.
I doubt they'll even get a mention in the national press.
You'll hear about them here...
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