6 Jul

Rescission of judgments by SARS: Barnard Labuschagne Inc v SARS

Finance News PAYE, SARS, SDL, TAA, UIF, VAT

The judgment deals with an application for rescission of a judgment by Barnard Labuschagne (Applicant), where SARS took judgment under the provisions of chapter 11 of the Tax Administration Act (TAA).

SARS filed a certified statement in terms of Section 172 of the TAA with the Registrar of the Court, setting out an amount of liquid debt due by the Applicant in respect of PAYE, VAT, UIF and SDL, and payable to SARS.

The Applicant is a law practice in the Western Cape and brought an application to rescind, based on various contentions. Over an extended time, the Applicant had various issues with incorrect allocations of taxes paid to the correct accounts. The dispute occurred over the years, and it was evident that the Applicant left this dispute unresolved. This occurred various times between 2009 and 2017. SARS had issued penalties and raised interest, and threatened judgment on various occasions. SARS even went as far as to make employees available to the Applicant, to allocate funds correctly. SARS eventually applied for judgment, based on a tax debt owed by the Applicant from the Applicant’s self-assessment.

The Applicant refused to object to the assessment, as it contended that SARS had not issued an objectionable assessment, and stressed that it was entitled to bring these proceedings, in terms of section 105 of the TAA, for a rescission of the judgment granted in terms of section 172 and 174 of the TAA. The Applicant further tested the constitutionality of the sections, if the Court did not find agreement with the Applicant, as these sections would then infringe his Constitutional rights to approach a court for relief when a judgment is granted. SARS countered this, stating that the judgment in terms of these sections was not judicially granted, as it lacks determining characters of judicially issued judgments.

In its judgment, the Court refuted the Applicant’s constitutionality arguments, stating that they held no weight. The High Court further confirmed that there must be a civil judgment in existence and that sections 172 and 174 constitute law enforcement mechanisms. These statements can be filed irrespective of whether an objection or appeal is in play, or an amount has been suspended. The benefit to the Applicant. Though. is that it is not a formal civil judgment and cannot be accorded the status of such.

In finality, the Court found that as this is not a civil judgment ordered by a court, one could not follow this route to have the judgment rescinded and as a result dismissed the application for rescission of judgment, and declared that the relevant provisions are not unconstitutional.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

8 Jun

Tax procedures during liquidations

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Finance News Liquidation, PAYE, SCA

In CSARS v Pieters and others, the Supreme Court of Appeal (SCA) was tasked with deciding whether liquidators were required to withhold employees’ tax from payments made to employees under section 98A of the Insolvency Act. The company in question was an insolvent transport company which had employed approximately 700 people. Forty-five days after the appointment of the liquidators, the employment contracts for these employees were terminated under section 38(9) of the Insolvency Act.

During the liquidation process, the employees accrued salary entitlements, leave pay and severance pay. The liquidators determined the quantumhereof and paid amounts owing to them in terms of the provisions of the Insolvency Act.

SARS objected to the liquidation and distribution (L&D) account lodged by the liquidators, on the basis that no provision had been made for the payment of employees’ tax (PAYE) in respect of the payments made by the liquidators. The Master of the High Court accepted SARS’ objection and ordered the liquidators to amend the L&D Account to reflect the employees’ tax as administration costs and deduct the actual employees’ tax payable from their liquidators’ fee.

As stated above, the key issue that the SCA had to decide was whether the liquidators were obliged to withhold employees’ tax on payments made in terms of section 98A of the Insolvency Act.

SARS argued that the liquidators fell within the definition of “employer” where they made these payments. The Master of the High Court agreed and ordered the liquidator to amend the liquidation and distribution account.

The SCA held that the provisions in the Insolvency Act were clearly social justice provisions aimed at alleviating the plight of being unpaid as an employee as a result of the financial woes of an employer. The court held that the provisions in the Fourth Schedule to the Income Tax Act do therefore not apply to payments made under section 98A of the Insolvency Act. To categorise PAYE as costs of administration would have the effect that income tax, attributable to the company’s trade before liquidation and which thus becomes payable before the liquidation, would also be a cost of administration. That is plainly untenable. On this basis, SARS’ appeal was dismissed.

15 Jul

Tax season 2019: What can you expect?

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Tax PAYE, SARS, Tax

SARS recently released two media statements, in which it notes several improvements made to eFiling for the 2019 tax season, including the issue of customised notices indicating specific documents required in the event of an audit or verification and a simulated outcome issued before a taxpayer has filed.

What is the tax season?

Tax season is the period in which individual taxpayers file their income tax returns to ensure that their affairs are in order. Although the majority of taxpayers who earn a salary have already paid tax through monthly pay-as-you-earn tax (PAYE), which was deducted from their salary by their employer and paid over to SARS, employees may still have an obligation to file a tax return if they earn above the filing threshold (see in more detail below). Once SARS reconciles what was paid over by the employer with what a taxpayer declares on their tax return, an assessment is issued which may result in the taxpayer needing to pay an additional tax to SARS, or is due a refund, or neither.

Taxpayers who are natural persons and meet all of the following criteria need not submit a tax return for the 2019 filing season:

Your total employment income for the year before tax is not more than R500 000;
Your remuneration is paid from one employer or one source (if you changed jobs during the tax year, or have more than one employer or income source, you must file);
You have no car or travel allowance, a company car fringe benefit, which is considered as additional income;
You do not have any other form of income such as interest, rental income or extra money from a side business; and
Employees tax (i.e. PAYE) has been deducted or withheld

Although you are not required to submit a tax return if you meet the above criteria, it is always good practice to ensure that you have a complete filing history with SARS. If your tax records do ever become important in future (such as in the case of remission of penalties, tax clearance certificates, etc.), you do not want to be in a position to have to prove that you were not liable to file a return in a particular year. The administrative burden in the current year certainly outweighs the potential issues down the line.

Important filing dates

eFiling opens on 1 July 2019 and closes on 4 December 2019.
Manual filing at branches opens on 1 August 2019 and closes 31 October 2019.
Provisional taxpayers have until 31 January 2020 to file via eFiling.

There is already a steady increase in the number of taxpayers in queues at SARS branches – it is therefore advised that you engage with your tax practitioner as soon as possible, to plan for tax season 2019.