A recent ruling by the Supreme Court of Appeal (SCA) has sent a clear warning to taxpayers: objections to SARS assessments must be carefully drafted from the start. Introducing new grounds of objection later in the tax litigation process is not allowed.
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Filing a notice of objection with the South African Revenue Service (SARS) is not just a formality. It establishes the scope of the dispute. Once submitted, taxpayers cannot later bring up entirely new issues that were not included in the original objection.
Refining vs. Introducing New Grounds
The SCA clarified the difference between refining your arguments and introducing a completely new case. While Rule 32(3) of the Tax Court Rules allows taxpayers to develop their legal reasoning during the appeal process, it does not permit changing the focus of the dispute. Any new objection targeting a different component of the assessment will be rejected.
Case in Point: Baseline Civil Contractors
The dispute arose from Baseline Civil Contractors’ 2018 corporate tax return, where the company claimed deductions of over R73 million, including more than R11 million allegedly paid to a participating partnership. SARS disallowed this deduction, considering it a voluntary profit distribution rather than an expense incurred in generating income.
Initially, Baseline objected to SARS’s additional assessment on the grounds that the R11 million was a legitimate business expense. However, during the Tax Court stage, the company attempted to argue that the amount had never been part of its gross income. The SCA ruled that this constituted an entirely new case, inconsistent with the original objection, and was therefore not permissible.
Lessons for Taxpayers and Practitioners
1. Objections define the dispute: Your notice of objection sets the boundaries for the entire litigation.
2. Plan your arguments carefully: Alternative positions should be considered at the outset, especially where the legal classification of a transaction is uncertain.
3. Opportunities to change course are limited: Once a dispute reaches the Tax Court, the chance to introduce new grounds is effectively closed.
Bottom Line
This judgment underscores the importance of drafting precise and well-considered objections. A single oversight can prevent taxpayers from fully defending their position, potentially tipping the scales in SARS’ favor.
Contact Leozzy Accounting today for expert tax services and guidance on SARS objections.
