1966
Here is the latest one.
TAX ADMINISTRATION
2195. Prescription
APRIL 2013 – ISSUE 163
The coming into force of the Tax Administration Act (TAA) has brought the issue of prescription into sharp focus. There are two reasons why this is so: firstly, the standard prescription period of three years has been extended to five years for ‘self-assessments’, and secondly the assessment returns seem to require only limited disclosure and taxpayers are left wondering whether the limited disclosure affords them the prescription protection they need.
The reason for the extension of the basic period of prescription from three to five years is to accommodate the system of self-assessment. In light of the fact that the bulk of current assessments are completed on a ‘self-assessment’ basis, SARS requires a longer period in which to interrogate and audit the assessment. Self-assessments require no thought process from an assessor; they are simply captured by the SARS computer system, and theoretically could run the course through to prescription without any intervention in the form of a revenue official applying his mind. Prior to the e-filing self-assessment era, all income tax returns were subject to an assessment of sorts by an assessor whose job it was to identify and query anything problematic. That no longer applies and SARS requires a longer period to enable them to run risk assessment programs or analytics on returns which should identify potentially contentious issues and leave them time to query and reassess where necessary.
The TAA specifically defines a ‘self-assessment’, which on the face of it, gives rise to a surprising result since income tax returns would not constitute ‘self-assessments’ as defined, since self-assessments require a determination of the tax due whereas income tax returns, for companies and individuals, do not require any such determination. On that basis, these returns, not being self-assessments, would be subject to the three year rather than the five year prescription rules.
Whether the three to five year prescription rule applies, the protection afforded by prescription is extremely important for all taxpayers and indeed for SARS too. Taxpayers, who have made full and complete disclosure, are entitled to know that at some point they are beyond the stress of a SARS audit, and SARS needs to ensure that its system highlights and red-flags for query and audit, all those returns which warrant such attention, prior to the prescription period expiring.
In order for this system to work, it is clear that comprehensive and accurate disclosure on well-designed tax returns is critical. Oddly, the standard company tax return remains relatively abbreviated and one would expect in future, for example, a more comprehensive list of questions which would be required to be completed. The e-filing system does not require the submission of supporting schedules or even financial statements – these must simply be prepared and retained on file – so the taxpayer actually has limited opportunity for disclosure even should he wish to disclose more than the return demands. What happens, for example, when a taxpayer claims as a deduction an item which is not separately disclosed on the return, in a situation where the deductibility is somewhat debatable (as frequently happens in tax matters)? One option would be to retain an opinion on file supporting the claim, but that is not always practical. While the system of return disclosure remains in its current imperfect state, it is inevitable that disputes will arise with taxpayers claiming prescription on the one hand, while SARS on the other contests items on returns that have nominally prescribed. Some legal precedent on this question involving a dispute on an assessment in the e-filing era would be particularly helpful.
Ernst & Young
TAA: Section 1 Definition of ‘self-assessment’
TAX ADMINISTRATION
2195. Prescription
APRIL 2013 – ISSUE 163
The coming into force of the Tax Administration Act (TAA) has brought the issue of prescription into sharp focus. There are two reasons why this is so: firstly, the standard prescription period of three years has been extended to five years for ‘self-assessments’, and secondly the assessment returns seem to require only limited disclosure and taxpayers are left wondering whether the limited disclosure affords them the prescription protection they need.
The reason for the extension of the basic period of prescription from three to five years is to accommodate the system of self-assessment. In light of the fact that the bulk of current assessments are completed on a ‘self-assessment’ basis, SARS requires a longer period in which to interrogate and audit the assessment. Self-assessments require no thought process from an assessor; they are simply captured by the SARS computer system, and theoretically could run the course through to prescription without any intervention in the form of a revenue official applying his mind. Prior to the e-filing self-assessment era, all income tax returns were subject to an assessment of sorts by an assessor whose job it was to identify and query anything problematic. That no longer applies and SARS requires a longer period to enable them to run risk assessment programs or analytics on returns which should identify potentially contentious issues and leave them time to query and reassess where necessary.
The TAA specifically defines a ‘self-assessment’, which on the face of it, gives rise to a surprising result since income tax returns would not constitute ‘self-assessments’ as defined, since self-assessments require a determination of the tax due whereas income tax returns, for companies and individuals, do not require any such determination. On that basis, these returns, not being self-assessments, would be subject to the three year rather than the five year prescription rules.
Whether the three to five year prescription rule applies, the protection afforded by prescription is extremely important for all taxpayers and indeed for SARS too. Taxpayers, who have made full and complete disclosure, are entitled to know that at some point they are beyond the stress of a SARS audit, and SARS needs to ensure that its system highlights and red-flags for query and audit, all those returns which warrant such attention, prior to the prescription period expiring.
In order for this system to work, it is clear that comprehensive and accurate disclosure on well-designed tax returns is critical. Oddly, the standard company tax return remains relatively abbreviated and one would expect in future, for example, a more comprehensive list of questions which would be required to be completed. The e-filing system does not require the submission of supporting schedules or even financial statements – these must simply be prepared and retained on file – so the taxpayer actually has limited opportunity for disclosure even should he wish to disclose more than the return demands. What happens, for example, when a taxpayer claims as a deduction an item which is not separately disclosed on the return, in a situation where the deductibility is somewhat debatable (as frequently happens in tax matters)? One option would be to retain an opinion on file supporting the claim, but that is not always practical. While the system of return disclosure remains in its current imperfect state, it is inevitable that disputes will arise with taxpayers claiming prescription on the one hand, while SARS on the other contests items on returns that have nominally prescribed. Some legal precedent on this question involving a dispute on an assessment in the e-filing era would be particularly helpful.
Ernst & Young
TAA: Section 1 Definition of ‘self-assessment’