Mere suspicion by SARS does not suffice to prove
fraud by a taxpayer
Every taxpayer should take great care to ensure that the information given in his or her tax return is accurate, as SARS regards false or misleading information very seriously and does not hesitate to exercise its formidable powers in such circumstances.
Thus, SARS has the power to issue an additional assessment in respect of income that was not disclosed in a tax return, and can impose additional tax on such income equal to double the tax properly payable. The taxpayer will in effect have to pay triple tax in respect of the undisclosed income. The non-disclosure of income in a tax return is also a criminal offence and can be punished by the imposition of a fine or imprisonment.
In the recent case of ITC 1821, SARS took the view, having scrutinised the taxpayer’s bank statements, that she had fraudulently failed to disclose all her income, and levied additional tax of 100% plus penalties.
The taxpayer went to great pains to provide SARS with an explanation as to why she believed, in good faith, that she was not taxable on the apparently undisclosed income, but SARS refused to withdraw the additional assessments.
The taxpayer then appealed to the Tax Court, where the judge was highly critical of the way SARS had handled the matter.
The judge pointed out that SARS had not investigated the nature of the funds that had been paid into the taxpayer’s bank account and had simply assumed that these amounts were subject to income tax. The judge pointed out that SARS had had years to investigate the truth or otherwise of the taxpayer’s explanation, but had failed to do so.
The judge said that SARS had “acted in a high-handed and reckless fashion” and that its conduct in this case had “fallen short of the standard of professional conduct that the public is entitled to expect of them”.
The judge said that SARS had placed no evidence before the court to contradict the taxpayer’s version of events, nor any evidence that the taxpayer had set out to defraud the fiscus.
The court set aside the additional tax that had been imposed and ordered SARS to pay the taxpayer’s legal costs.
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