Tax judgments are no ordinary judgments

In the recent judgment of CSARS v Candice-Jean Van Der Merwe the Supreme Court of Appeal considered an application for default judgment brought by the taxpayer against the commissioner.

The dispute with SARS centred around the taxpayer’s 2014 tax return which showed taxable income of R365,000 and a receipt of R142 million as a ‘gift from her companion abroad’. Initially the ‘donation’ was not subject to any tax. After the taxpayer paid income tax of R13,000 SARS interrogated the ‘donation’ and found that it was not a gratuitous donation and was therefore subject to income tax.

There were negotiations between the parties’ attorneys which resulted in a settlement amount of R44 million being paid to SARS. During the settlement negotiations it was recorded in correspondence that there would be an agreed assessment issued in terms of section 95(3) of the Tax Administration Act, 2011. Importantly, agreed assessments are not subject to objection or appeal.

However, two years later the taxpayer lodged an objection against the additional assessment to reverse what her attorneys had agreed. The taxpayer objected because she only became aware of the assessment when she accessed her e-filing profile, the assessment having been raised on non-taxable income and paid on the basis of the ‘pay now argue later rule’.

SARS submitted that there were no exceptional circumstances for filing the late objection. Furthermore, they disputed that the taxpayer only became aware of the assessment so late, and in any event, she was not entitled to object to an assessment agreed to in term of section 95(3). SARS issued a notice of invalid objection. Nevertheless, the taxpayer went ahead and filed her notice of appeal and when SARS did not file its Rule 31 Statement in response, the taxpayer applied for default judgment.

The court held, after considering all the facts, that there was an irresistible inference that the taxpayer paid the agreed amount pursuant to section 95(3) and not on the ‘pay now argue later’ principle. It therefore followed that the taxpayer’s additional assessment was not subject to objection or appeal. A right to appeal is dependent on a valid objection. The court concluded that the taxpayer’s application for default judgment was ill-fated as it was based upon the incorrect legal conclusion that SARS was obliged to file a Rule 31 Statement.

Taxpayers who are aggrieved by a notice of an invalid objection from SARS can apply to the Tax Court under Rule 52(2)(b) for an order that the objection is valid. This is the route that the taxpayer should have taken.


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