Time isn’t of the essence
Could Revenue accuse e-filers of non-disclosure?
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.”