Time isn’t of the essence

Could Rev­enue ac­cuse e-fil­ers of non-dis­clo­sure?

Finweek English Edition - - Companies & Markets -

TAX­PAY­ERS COULD BE ac­cused of non-dis­clo­sure for the 2007 year of as­sess­ment due to a mis­match be­tween the pre­scrip­tions of e-fil­ing and South Africa’s tax leg­is­la­tion. In the 2007 tax year – when e-fil­ing was in­tro­duced – tax­pay­ers were no longer re­quired (in terms of the SA Rev­enue Ser­vice’s brochure ac­com­pa­ny­ing the re­turn) to sub­mit sup­port­ing doc­u­men­ta­tion.

How­ever, the In­come Tax Act still pre­scribes that all sup­port­ing doc­u­men­ta­tion should be sub­mit­ted and non-com­pli­ant tax­pay­ers could be guilty of “non-dis­clo­sure”.

Even though the lat­est Tax­a­tion Laws Amend­ment Act amends those sec­tions in the In­come Tax Act that re­quire tax­pay­ers to sub­mit sup­port doc­u­men­ta­tion, it’s only ap­pli­ca­ble from 3 July 2008, which means 2007 tax re­turns might still be in the line of fire.

It also means Rev­enue (in terms of the Act) wouldn’t be lim­ited to the three-year pre­scrip­tion pe­riod but could re­open any as­sess­ments at any time in the fu­ture.

David French, as­so­ciate tax di­rec­tor at Ernst & Young, says a pre­scrip­tion pe­riod is one dur­ing which Rev­enue is al­lowed to re­visit a tax re­turn and make changes. Af­ter three years Rev­enue may not make any changes to an as­sess­ment. How­ever, the pre­scrip­tion pe­riod isn’t ap­pli­ca­ble if there’s ev­i­dence of non-dis­clo­sure or fraud in a tax re­turn.

For ex­am­ple, if a tax­payer leaves out an amount on his tax re­turn and Rev­enue picks it up – even more than three years af­ter the fact – they can still tax him on that amount of in­come.

“The is­sue here is the clas­si­fi­ca­tion of in­come,” says French. “You may take the view an item of in­come isn’t tax­able be­cause it’s cap­i­tal in na­ture, but there was no space al­lo­cated on the 2007 tax re­turn to dis­close such in­for­ma­tion. Rev­enue has no way of know­ing about it and ap­ply­ing its mind to whether it should be taxed or not. If it picks up on it – say, in five years’ time – it can re­open the as­sess­ment on the ba­sis that there’s been ma­te­rial non-dis­clo­sure.

“Our big­gest con­cern re­gard­ing non-dis­clo­sure is in re­spect of non-tax­able amounts that are com­pletely omit­ted from the re­turn in the case of in­di­vid­u­als,” says French. For ex­am­ple, the 2007 tax re­turns don’t make pro­vi­sion for non-tax­able in­come, such as re­ceipts of a cap­i­tal na­ture or non-tax­able in­ter­est re­ceived by non-res­i­dents. “Can Rev­enue ar­gue non-dis­clo­sure if there was no space pro­vided on the re­turn to de­clare that in­come?

“It’s my view Rev­enue can’t ar­gue non-dis­clo­sure, as it was its prac­tice that no sup­port­ing doc­u­ments should be sub­mit­ted with the 2007 and 2008 tax re­turns,” French says. “How­ever, to put the mat­ter be­yond doubt the leg­is­la­tion re­gard­ing pre­scrip­tion should be amended by align­ing it with the lat­est amend­ments. Per­haps there should be some fur­ther clar­i­fi­ca­tion on what ma­te­rial nondis­clo­sure is con­sid­ered to be if no in­for­ma­tion is re­quested by Rev­enue.”

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