With the deadline for the submission of non-provisional individual taxpayers’ returns approaching, a recent eFiling court case serves as an important reminder that the responsibility for submitting accurate and complete tax returns rests with the taxpayer.

“Beyond the accuracy of the information declared, the case also highlights the importance of keeping registered particulars up to date with SARS, safeguarding eFiling login credentials and regularly monitoring access to eFiling profiles throughout the year,” advises tax technical consultant Gontse Pudi.

“These responsibilities are particularly relevant where taxpayers rely on third parties to manage their tax affairs or are unfamiliar with their tax obligations.”

The case: revised returns and R1.38-million refund

In the matter of Taxpayer MLC v Commissioner for the South African Revenue Service, the taxpayer who had previously declared employment income as her only source of income, submitted revised income tax returns for the 2020 and 2021 years of assessment, which included substantial farming expenditure and losses.

These submissions resulted in a refund of approximately R1.38 million.

During 2023, based on a risk assessment conducted, SARS then elected to audit the taxpayer’s income tax for the years 2020 and 2021 and she was informed accordingly.

In the audit findings, SARS disallowed the farming expenditure and subsequently issued revised assessments because the taxpayer could not provide supporting documents to substantiate the revisions she had made to her returns.

The taxpayer indicated that she had not conducted a farming operation and had not purchased the farming equipment reflected in the returns.

SARS subsequently raised an additional liability of approximately R3.62 million, which included the capital amount, interest and a 150% understatement penalty.

The taxpayer accepted that they had received an undue refund and did not dispute that.

However, they did dispute the understatement penalty SARS imposed of R2 million for intentional tax evasion.

The taxpayer’s explanation was that she had not submitted the revised returns.

She alleged that a SARS official had used her eFiling credentials to submit the returns.

She testified that, during an earlier interaction with SARS, she had provided her login details and password to a SARS official.

The unauthorised access to the changes on her return were, however, not reported to SARS timeously.

The court considered the SARS eFiling rules applicable to the taxpayer, which required the registered user to safeguard their user identity and access code, and prohibited the sharing of an access code with any other person, including a SARS official.

The rules also provided that a registered eFiling user is liable for transactions performed using their user identity and access code.

Court rejects explanation and upholds 150% penalty

The court did not accept the taxpayer’s explanation.

Among other considerations, the court noted the absence of supporting documentary evidence for her version, the lack of bank records supporting her explanation regarding the refund, and changes in her explanation during the SARS processes.

The court also noted that the allegation that a SARS official had committed the fraud was raised only at the appeal stage and had not been raised during the audit, objection or alternative dispute resolution process.

The court ultimately found that the revised returns resulted in an understatement because the incorrect information had caused prejudice to SARS through the undue refund.

SARS had established, on a balance of probabilities, that the conduct constituted intentional tax evasion.

The 150% understatement penalty was therefore upheld and the taxpayer’s appeal was dismissed with costs.

Pudi has the following advice for taxpayers to avoid a similar pitfall:

Responsibility for an accurate return rests with the taxpayer

The case provides an important reminder of the taxpayer’s responsibility for their tax affairs. It highlights a fundamental principle of South African tax administration that the responsibility for ensuring that a tax return is complete and accurate rests with the taxpayer.

Section 25 of the Tax Administration Act 28 of 2011 (TAA) requires a return to contain the information prescribed by the relevant tax Act or the commissioner, and to constitute a full and true return.

It further provides that a return must be signed by the taxpayer or their duly-authorised representative and that the person signing the return is regarded, for purposes of a tax Act, as being cognisant of the statements made in that return.

Taxpayers should therefore not simply assume that a return is correct because it was prepared or submitted by another person, including a SARS official, or because SARS’s eFiling system accepted the submission.

Where a taxpayer engages someone to assist with their tax affairs, or the return is submitted on eFiling, they should take reasonable steps to understand the nature of the information being declared; verify that the information is accurate; and ensure that deductions, credits and expenses are supported by appropriate documentation.

Who must prove what: the burden of proof

The distinction between the obligation to submit a correct return and the burden of proving an understatement penalty is also important.

Under section 102 of the TAA, the taxpayer bears the burden of proving that an amount is deductible and SARS bears the burden of proving the facts on which the imposition of an understatement penalty is based.

In this matter, the court found that SARS had discharged this burden on a balance of probabilities.

The judgment reinforces the importance of maintaining credible supporting evidence and being able to substantiate the information submitted to SARS, particularly where the taxpayer disputes the accuracy or origin of a return.

Why use a registered tax practitioner

Tax legislation is complex and taxpayers may not always understand the implications of the deductions, allowances, credits or disclosures reflected in their returns.

This is particularly relevant where taxpayers have multiple income sources, operate businesses or undertake transactions with complex tax consequences.

Engaging a registered tax practitioner can assist taxpayers in understanding their tax obligations, determining the correct tax treatment of transactions and ensuring that returns are prepared with due regard to the applicable legislation.

Section 240 of the TAA provides for the registration of tax practitioners.

In general, a natural person who, for a fee, provides tax advice or completes or assists in completing another person’s tax return must register with SARS and a Recognised Controlling Body (RCB) such as the South African Institute of Taxation (SAIT).

A registered tax practitioner is subject to professional and regulatory requirements and may be held accountable for professional misconduct through SARS and their registered RCB.

Taxpayers should therefore verify that the person they engage is appropriately registered and maintain an active role in their own tax affairs.

Warning signs of unregistered practitioners

Taxpayers should also be cautious of individuals who offer tax services without being properly registered.

Using an unregistered tax practitioner can expose taxpayers to significant risks, particularly where returns are submitted containing incorrect information or unsupported deductions.

Taxpayers should verify the practitioner’s registration status before providing access to their tax affairs and should be cautious of anyone who promises unusually large refunds, encourages them to claim deductions they cannot substantiate or asks them to provide their personal eFiling login credentials.

A taxpayer ultimately faces the consequences of an inaccurate return, even where the return was prepared or submitted by another person.

To make sure your tax practitioner is registered, check the South African Institute of Taxation (SAIT) Practitioner Directory. SAIT is one of South Africa’s leading Recognised Controlling Bodies.

Protecting your eFiling profile

The alleged compromise of the taxpayer’s eFiling profile in this court case also highlights the importance of safeguarding access to SARS’s digital platforms.

SARS has introduced security measures, including two-factor authentication, enhanced password requirements and biometric facial authentication for certain transactions.

Taxpayers should enable two-factor authentication and make use of the security features available to them.

They should ensure that the email address and cellphone number registered with SARS are current and accessible, as these details may be used for security notifications and the receipt of one-time PINs.

Strong, unique passwords should be used, and passwords or OTPs should never be shared with unauthorised persons.

Taxpayers should also be cautious of suspicious emails, messages and requests for their login details.

Regularly checking eFiling profiles, tax returns, assessments, banking details, contact information and other profile activity can assist in identifying unfamiliar changes or transactions.

Where a registered tax practitioner assists with a taxpayer’s affairs, the practitioner should be correctly linked and authorised on eFiling rather than relying on shared login credentials.

What to do if your profile is compromised

Where a taxpayer suspects that their eFiling profile has been compromised, the matter should be reported to SARS promptly for investigation.

SARS provides a dedicated process for reporting a compromised eFiling profile, including cases involving unauthorised changes to taxpayer details.

Further information is available on the SARS website.

Record-keeping: what to keep and for how long

The responsibility to submit an accurate return goes hand in hand with the obligation to maintain adequate records.

Section 29 of the TAA requires taxpayers to keep records, books of account and documents that enable them to comply with their tax obligations, including the submission of accurate returns and the verification of information declared to SARS.

In terms of section 29, read with section 30 and 32 of the TAA, records must generally be retained for five years from the date of submission of a return.

However, where a return has not been submitted, an audit, investigation or dispute is pending, or other statutory circumstances apply, the retention period may be extended.

Taxpayers should therefore not automatically destroy records after five years where a matter remains unresolved.

Practically, taxpayers should retain copies of submitted tax returns, assessments and relevant SARS correspondence, invoices, receipts, bank statements and proof of payment supporting deductions and expenses, IRP5 certificates and other income documentation, and records of business or farming activities.

Correspondence and supporting documents exchanged with their tax practitioner should also be retained.

Maintaining these records enables taxpayers and their practitioners to verify the accuracy of returns, respond to SARS verification or audit requests, and provide evidence where a transaction or submission is disputed.

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The news provided to you in this link has been investigated and compiled by the editorial staff of the Newcastle Advertiser, a sold newspaper distributed in the Newcastle area. Please follow us on Youtube and feel free to like, comment, and subscribe. For more local news, visit our webpage, follow us on Facebook and Twitter, and follow us on our WhatsApp Channel