How Estimated Assessments Work
There are no requirements for SARS on how to make an estimated assessment. It needs only be done based on information readily available to it which is a very wide definition and may place any taxpayer at a disadvantage.
Based on “information available” is even narrower than if it is based on “grounds available” to SARS. When grounds for the assessment are required, that implies more specific information and detail to be provided. Yet many taxpayers are confronted with the terse statement that the assessment was done purely on information available to SARS.
Often that information is incorrect or invalid.
For example, SARS may make estimated assessments after disallowing deductions from a business account if the amounts involved cannot be traced to trade, as defined, and may be classified as personal expenses. However, apportionment could have been considered.
Your Options When It Happens
Furthermore, the taxpayer may not object to an estimated assessment, if the SARS estimated assessment is not a reduced or additional assessment. However, the taxpayer may request SARS to make a reduced or additional assessment if a “true and full” return is submitted.
SARS has used this right at times in strange ways, assessing taxpayers purely on “movements in their bank accounts”, or requiring documents to prove “cost of sales”. The reality is that a taxpayer cannot be taxed on these grounds. The taxpayer may not even be taxed on gross income. Tax can only be levied on taxable income, as defined.
The Burden of Proof
Taxpayers have one ace up their sleeves. S102(2) of the Tax Administration Act (TAA) requires the burden of proof to be on SARS whether the estimated assessment is reasonable.
However, in a recent court case a judgement was delivered that this burden of proof only rests on SARS in litigation, and not in any pre-litigation phase. It is unclear on what basis this judgement was made, as S102 does not have this specific requirement.
Moreover, S102 is worded before the objection and appeal stipulations in S104 and S107 as part of the dispute resolution process in terms of Chapter 9 of the TAA. The litigation phase in the Tax Board and Tax Court and further only commences after the S104 and S107 processes have been exhausted. It seems therefore more likely that SARS needs to be held to this requirement even in pre-litigation.
This article is general information about South African tax and is not tax advice. Tax outcomes depend on the specific facts of each matter. See our Website Terms of Use for more.
Estimate look wrong?
Estimated assessments are often based on incomplete or incorrect information. If SARS has assessed you this way, it’s worth having the basis of that estimate properly reviewed.