Tax Administration Act PDF 2024

Tax Administration Act  Learning outcomes You should be able to identify the legislative framework within which the tax administration process takes place and the role players involved; identify the relevant aspects of the tax compliance process and determine the rights and oblig...

Tax Administration Act  Learning outcomes You should be able to identify the legislative framework within which the tax administration process takes place and the role players involved; identify the relevant aspects of the tax compliance process and determine the rights and obligations of SARS and the taxpayer in relation to each aspect; and apply the dispute resolution process whenever the taxpayer is aggrieved by an assessment or decision by SARS.  Overview The purpose of the Tax Administration Act (TAA) is to incorporate into one piece of legislation certain generic administrative provisions which were previously duplicated in various Tax Acts However, some administrative provisions that only apply and are unique to the administration of a specific tax type remain in the tax Act that imposes that tax. Legislative framework Constitution of the Republic of South Africa Promotion of Administrative Justice Act (PAJA) Tax Administration Act (TAA) Some administration provisions remained in specific tax Acts  Legislative framework Legislative framework (33.2.) Information gathering Tax compliance Dispute resolution (33.4.) (33.3.) (33.5.) Taxpayer registers for tax Adjustment of SARS Taxpayer assessment if dispute gathers submits returns successful information Tax Additional assessed assessment if tax (incl. assessment was not penalties correct and interest) Taxpayer Person disputes liable pays assessment if tax due disagrees with it If not paid SARS recovers tax due  Definitions – Section 1 Business day NB: Rules refer to days but Gazette refer back to TAA (therefore business days) Dispute resolution  Definitions – Section 1 Date of Assessment Assessment by SARS – Date of issue of notice of assessment Self assessment – Return: date return submitted No return: date of last payment of tax  Definitions – Section 1 Self Assessment  Registrations Section 22 s22(1) Applies equally to a person who - Required to register - Voluntarily registers SARS allocates a tax reference number All returns and documents submitted to SARS MUST include this reference number  Registrations Section 22  Registrations Apply for In the Registrations 21 business days of so prescribed A person must within becoming obliged form and manner (for one or Further period as SARS more taxes) may approve SARS with provide further particulars For the purpose of registering And any documents the person for SARS may require the tax(es) Duty to keep records – section 29 Duty to keep records – s55 of the VAT Act Duty to keep records – section 29 Assessment (withdrawal) – section 98 ▪ To be used only in circumstances beyond the taxpayers control ▪ SARS can withdraw an assessment if: ▪ issued to the incorrect taxpayer ▪ raised in respect of an incorrect period ▪ Issued as a result of an incorrect payment allocation ▪ Practically ▪ Request for correction first  Prescription – section 99 Type of assessment Limitation for issuance of assessments (s 99) Original assessment 3 years after date of original assessment Self-assessment – return 5 years from date of original assessment (i.e. return) by required/no return taxpayer, or by SARS if no return was received received Self-assessment – 5 years from date of payment, or if no payment, the no return required effective date Additional assessment Never i.e. zero years - If previous assessment was based and on practice generally prevailing (eg PN31) at the date of Reduced assessment assessment or in relation to a resolved dispute Assessment (Period of limitation for issuance of assessments ) – section 99 Prescription Zero years Assessment (Period of limitation for issuance of assessments ) – section 99  Dispute resolution – Burden of proof S102 1) A taxpayer bears the burden of proving— (a) that an amount, transaction, event or item is exempt or otherwise not taxable; (b) that an amount or item is deductible or may be set-off; (c) the rate of tax applicable to a transaction, event, item or class of taxpayer; (d) that an amount qualifies as a reduction of tax payable; (e) that a valuation is correct; or (f) whether a ‘decision’ that is subject to objection and appeal under a tax Act, is incorrect. (2) The burden of proving whether an estimate under section 95 is reasonable or the facts on which SARS based the imposition of an understatement penalty under Chapter 16, is upon SARS  Dispute resolution Section 102 – 107 What is: - Objection against an assessment? - Appeal against assessment? - Alternative dispute resolution (ADR) process  Dispute resolution Documents Step 1: Return Step 2: Assessment Step 3: Request for reasons Step 4: Notice of Objections or Alternative Dispute Resolution 1 Form  Dispute resolution – Reasons for assessments (Rule 6) TP request reasons for assessment within 30 days after the date of assessment Business days!! Rule 6 of General Notice 550 of 11 July 2014 - Page 582 SAICA Volume 3 publication  Dispute resolution – Objection against assessment (Rule 7) TP not satisfied Business days!! Object to assessment within 80 days after: - Date of assessment OR - Date of reasons/notice that reasons have already been provided Rule 7 of General Notice 550 of 11 July 2014 Change in legislation - Page 582 SAICA Volume 3 publication (awareness level only) Assessment after 10 March 2023, taxpayers have 80 days to object  How to object (Rule 7 & 9) Prescribed forms: - NOO – Personal income tax, PAYE (only penalties), corporate income taxpayers - ADR 1 – Trusts, VAT, PAYE (assessments) 20 days to amend objection if not compliant with requirements  Appeal against disallowed objection TP not satisfied: Commissioner disallowed the objection Appeal ADR Litigation Notice of appeal delivered within 30 days from receipt of notice of SARS’ Tax Board Tax Court decision on objection (≤ R1m) (> R1m or if dissatisfied with tax board decision )  How to appeal Prescribed forms: - NOA – Personal income tax, admin penalties, corporate income taxpayers iro an assessed tax - ADR 2 – Corporate income taxpayers not in NOA (ie VAT & PAYE) Alternative dispute resolution (ADR) (Rule 13) - If the appellant has in a notice of appeal indicated a willingness to participate in ADR: - SARS must inform the appellant by notice within 30 days of receipt of the notice of appeal whether or not the matter is appropriate for ADR. - If the appellant has not indicated in the notice of appeal that the appellant wishes to make use of ADR, but SARS is satisfied that the matter is appropriate for ADR: - SARS must inform the appellant accordingly by notice within 30 days of receipt of the notice of appeal; and - the appellant must within 30 days of delivery of the notice by SARS deliver a notice stating whether or not the appellant agrees thereto. Alternative dispute resolution (ADR) (Rule 13) - ADR proceedings must be finalized 90 days after the notice from SARS that ADR is allowed - SARS appoints person to facilitate proceedings - TP/Representative TP (company/trust) must be personally present except in exceptional circumstances - Resolved when one party accepts another’s interpretation / parties agree to settle Dispute Resolution S 164 Payment of tax pending objection or appeal / “Suspension of payment” ▪ Pay now, argue later – but practically impacts on business and prospects of resolution ▪ Criteria for suspension ▪ Reasonableness of SARS’ decision is based on info provided  Administrative non-compliance penalties Section 208 - 220 (ignore reportable arrangements and mandatory disclosure penalty) Silke Reference Ch. 33.3.6.1 Administrative non-compliance penalties ▪ Imposed for failure to comply with administrative requirements of the tax Act. Excluded understatement penalties. ▪ Penalty is levied every month the non-compliance continues up to a maximum 35 months or 47 month where SARS is not in possession of your address. Fixed amount penalties Penalized events : 1. Failure to submit a return by natural person. 2. Failure to submit or remedy non-submission of OECD Common Reporting standards by a financial institution. 3. Non-submission of Country –by –Country reporting. 4. Non-submission of returns for diamond export levy. 5. Failure to submit a return by company. Penalty amounts  Percentage-based penalty ▪ In addition to all other penalties and interest , SARS must imposed a % based penalty on unpaid taxes. ▪ Penalty is equal to the % of the tax unpaid as required by the relevant tax Act. Remittance of admin non-compliance penalties ▪ Aggrieved by the penalties ??? ▪ You may ask SARS for remit the penalties detailed why you could not comply with the admin tax requirements. ▪ SARS may reduce the penalty in part or fully in certain circumstances. See table on page 1250 of Silke.  Understatement penalty Chapter 16 (sections 221-224 of TAA) Silke reference Ch. 33.3.6.2 What is an understatement? (s221) Prejudice to SARS/fiscus as a result of: ▪ failure to submit a return ▪ omission ▪ incorrect statement ▪ failure to pay the correct amount of ‘tax’ (no return required), or ▪ impermissible avoidance arrangement (BEL 705/BEL 751) Understatement Penalty  Understatement penalty What if understatement is caused by a mistake? (s222(1)) No understatement penalty if understatement results from a bona fide inadvertent error Understatement Penalty  Understatement penalty How to calculate understatement penalty? (s222(2)) HIGHEST APPLICABLE % x SHORTFALL Table (s223) Section 222(3) Understatement Penalty  PENALTY % TABLE s223 4 6 3 5 1 2 If Volun Stan Voluntary Item Behaviour obstructiv tary dard disclosure after notification of audit e, or if it disclo case is a sure repeat before notification of audit case (i) 10% 20% 5% 0% Substantial understatement Reasonable care not taken in completing 25% 50% 15% 0% (ii) return (iii) No reasonable grounds for tax position taken 50% 75% 25% 0% (iv) Impermissible avoidance arrangement 75% 100% 35% 0% (v) Gross negligence 100% 125% 50% 5% (vi) Intentional tax evasion 150% 200% 75% 10% Understatement Penalty  Substantial understatement s221 Prejudice to SARS/fiscus exceeds the greater of: ▪ 5% of the amount of tax properly chargeable or refundable under a tax Act for the relevant tax period, or ▪ R1 million Understatement Penalty  Substantial understatement ▪ Step 1: Compare 5% of tax properly chargeable to R1 000 000 & select higher ▪ Step 2: Is prejudice > Step 1 answer? ❑ Yes = substantial understatement ❑ No = no substantial understatement Understatement Penalty  Substantial understatement Example Tax properly chargeable Tax reported as chargeable Prejudice (P) Scenario 1 R30 000 000 R29 100 000 R900 000 Scenario 2 R30 000 000 R28 900 000 R1 100 000 Scenario 3 R30 000 000 R28 400 000 R1 600 000 Source: SARS Guide to Understatement Penalties (Example 18) Understatement Penalty  Shortfall S222(3) If there is a difference (1) The difference between the amount of tax properly chargeable between both (1) and for the tax period and the amount of tax that would have been (2), the shortfall must be reduced by the amount chargeable for the tax period if the ‘understatement’ were of any duplication accepted (s 222(3)(a)) between these items (s 222(4)(a)). If the taxpayer failed to submit AND a return, the tax that would have resulted had (2) The difference between the amount properly refundable for the the understatement tax period and the amount that would have been refundable if the been accepted must be understatement were accepted (s 222(3)(b)) nil (s 222(4)(b)) AND (3) An amount determined as follows: The difference between the amount of an assessed loss or any other benefit to the taxpayer properly carried forward from the tax period to a succeeding tax period and the amount that would have been carried forward if the ‘understatement’ were accepted, multiplied by: the maximum tax rate applicable to the taxpayer ignoring any assessed loss or other benefit brought forward from a preceding tax period (s 222(3)(c) read with s 222(5)). Understatement Penalty  Shortfall Example 1: Tax chargeable shortfall ▪ Co. A taxpayer declares R1 000 taxable income in their return. They have therefore reported R280 tax chargeable. ▪ It transpires that the taxable income is actually R1 500 and the tax chargeable R420. Source: SARS Guide to Understatement Penalties (Example 6) Understatement Penalty  Shortfall Example 2: Tax refundable shortfall ▪ A vendor submits a VAT return that reflects a refund of R1 200. However, the calculation excludes output VAT of R700 and the VAT properly refundable is actually R500. Source: SARS Guide to Understatement Penalties (Example 6) Understatement Penalty  Shortfall Example 3: Assessed loss or other benefit shortfall ▪ A taxpayer declares a loss of R1 000 in their return but because the calculation excludes income of R700, the actual assessed loss is R300. Source: SARS Guide to Understatement Penalties (Example 8) Understatement Penalty  Shortfall Example 4: Sum of shortfalls ▪ A vendor submits a VAT return that reflects a refund of R100 but the calculation excludes output VAT of R500 and the VAT properly chargeable is actually R400. Source: SARS Guide to Understatement Penalties (Example 9) Understatement Penalty  Criminal Offences S234 Non compliance Section 234-238 S235 Tax evasion and fraud Silke reference: S236 Secrecy provisions Ch. 33.2.4 S237 Filing a return without authority S238 Jurisdiction Criminal offences relation to non-compliance with tax Act ▪ Guilty of an offence and upon conviction be fined or sent to jail for a maximum of two years where : ▪ Failure to Submit Returns ▪ Inaccurate Information ▪ Failure to Pay Tax ▪ Late Payment ▪ Non-compliance with Information Requests See full list in section 234 Tax evasion and fraud ▪ Guilty of an offence and upon conviction be fined or sent to jail for a maximum of five years for fraud activities. Filing a return without authority ▪ Guilty of an offence and upon conviction be fined or sent to jail for a maximum of two years where : ▪ Submit returns or other documents with forged signature ▪ Use digital signature of another person when communicating with SARS. ▪ Submit communication to SARS on behalf of another person that has not given consent.  Tax Practitioners Section 240 - 241 Silke reference : Ch. 33.2.3.4 Ch. 33.2.4 Tax practitioner ▪ Due to the complexities of the Tax Act , taxpayers can use the services of tax practiontioners. ▪ Anyone providing advice on the application of the Act or assist in completing SARS documentation must register with : ▪ A recognized controlling body and SARS within 21 business days after providing advice or completing return. ▪ Exceptions to registration ???? Thank You