The Shifting Sands of Certainty: Navigating Prescription under Section 99 of the Tax Administration Act

By Dr Hendri Herbst

The quest for finality in tax matters is a cornerstone of a fair and efficient tax system. Taxpayers require assurance that, after a reasonable period, their tax affairs for a particular year are settled. Conversely, the revenue authority must have adequate opportunity to ensure compliance and collect taxes rightfully due. In South Africa, Section 99 of the Tax Administration Act 28 of 2011 (‘TAA’) is the central provision governing the time limitations for the South African Revenue Service (‘SARS’) to issue assessments. However, this provision is a complex tapestry of rules, exceptions, and extensions, creating what can often feel like shifting sands for taxpayers and practitioners alike.

This article seeks to unpack the intricacies of section 99, delving into its standard prescription periods, the pivotal role of the ‘date of assessment’, and the exceptions that may extend these time frames. By providing a comprehensive exploration of these provisions, it aims to arm taxpayers and practitioners with a clearer understanding of their rights and obligations, ultimately fostering greater certainty and fairness in the application of tax law.

The General Rule: Standard Time Limits for Issuing Assessments

At its core, section 99(1) of the TAA establishes the primary prescription periods. Generally, SARS may not issue an assessment:

• Three years after the date of an original assessment issued by SARS (this typically applies to taxes like income tax where SARS issues an assessment, such as an ITA34, after the taxpayer files a return).
• Five years after the date of an original assessment in the case of a self-assessment for which a return is required (common examples include Value-Added Tax (‘VAT’) or Pay-As-You-Earn (‘PAYE’)).
• Five years from the date of the last tax payment (or the effective date if no payment was made) for a tax period where no return is required.

The ‘date of assessment’ is the critical trigger for these periods. For assessments issued by SARS, it is the date indicated on the assessment notice. For self-assessments where a return is required, the Supreme Court of Appeal (‘SCA’) in CSARS v Char Trade provided vital clarification. The SCA held that the ‘date of assessment’ is the date the taxpayer submits the relevant return. This judgment has profound implications: if a taxpayer fails to submit a self-assessment return where one is mandated, the five-year prescription period under section 99(1)(b) of the TAA does not commence against SARS. This potentially leaves the taxpayer indefinitely exposed to assessment for that specific tax period.

Once the relevant three-year or five-year period has lapsed from the correctly determined date of assessment, and provided none of the statutory exceptions apply, SARS is barred from issuing an assessment (including an additional or revised assessment that would alter the tax liability) for that specific tax type and tax period. This provision is fundamental to providing taxpayers with finality and certainty regarding their tax liabilities for past periods.

Non-Prescription: The Exceptions in Section 99(2)

The certainty offered by section 99(1) is significantly tempered by the exceptions outlined in section 99(2) of the TAA. The most formidable of these is found in section 99(2)(a), which permits SARS to issue an assessment beyond the standard limitation periods if the failure to assess the full amount of tax was due to fraud, misrepresentation, or non-disclosure of material facts (‘FMNDD’) on the part of the taxpayer or a person acting on their behalf.

Understanding these terms is critically important:

• Fraud in a tax context generally involves an unlawful act committed with the specific intention of deceiving or misleading SARS, thereby causing an under-assessment of tax. It implies deliberate dishonesty.
• Misrepresentation is broader. It refers to a false statement of fact made by a taxpayer that leads to an under-assessment. Importantly, a misrepresentation can occur negligently, fraudulently, or even innocently. It does not typically include the expression of a mere opinion or an interpretation of law, provided all material facts supporting that interpretation were disclosed.
• Non-disclosure of material facts involves the failure by a taxpayer to reveal a fact that they had a duty to disclose, and which, if known to SARS, would have influenced the assessment outcome. The intention to conceal is generally irrelevant; the mere failure to disclose a material fact can suffice, provided the fact is indeed ‘material’. Material facts are those that would reasonably be expected to influence a SARS assessor’s decision-making.

A crucial element for SARS when invoking this exception is causality. It is not enough to merely establish FMND; section 99(2)(a) explicitly requires that the failure to assess the full tax amount must have been ‘due to’ such conduct. SARS must demonstrate a direct causal link between the taxpayer’s FMND and the resulting under-assessment. Furthermore, the onus of proof rests squarely on SARS to prove, on a balance of probabilities, both the existence of the alleged FMND and this causal connection.

The SCA judgment in CSARS v Spur Group (Pty) Ltd sent significant ripples through the tax community. In this case, Spur had incorrectly answered “No” to pertinent questions in its income tax returns (e.g., regarding contributions to a trust and deductions limited by section 23H of the Income Tax Act) and failed to separately disclose certain items in designated fields. The SCA held that these actions constituted deliberate misrepresentation and non-disclosure of material facts, as they limited SARS’s ability to flag potential tax risks through its automated risk identification processes. The court emphasized that the accuracy of the tax return itself is paramount, and reliance on information contained in attached financial statements might not cure such defects for prescription purposes. The Spur case highlights the critical importance of accurate and complete disclosure within the tax return form itself.

However, the more recent Western Cape Tax Court judgment in Pear (Pty) Ltd v CSARS (2024) provides a vital counter-perspective and clarifies that an assessment can be incorrect yet still be protected by prescription. The court stressed that SARS cannot simply assume dishonesty or misrepresentation merely because an assessment is found to be wrong; objective proof of the alleged misconduct at the time of raising the additional assessment is required from SARS. Furthermore, the non-disclosure of a relatively small and, in the court’s view, immaterial amount (R1,197.52 of notional interest in this instance) was found insufficient to trigger section 99(2)(a). This case reaffirms that both the nature of the taxpayer’s conduct and the materiality of any misstatement or omission are key considerations.

Other exceptions to the standard prescription periods detailed in section 99(2) include assessments issued to give effect to the outcome of a dispute resolution process (such as an objection or appeal finalised under Chapter 9 of the TAA), instances where SARS and the taxpayer agree (prior to expiry) to extend the prescription period (a common occurrence during complex audits to allow for thorough investigation and engagement), and certain assessments related to a ‘practice generally prevailing’ at the date of the original assessment.

Stretching the Clock: SARS’s Powers to Extend Prescription Periods

The Tax Administration Laws Amendment Act of 2015 introduced further complexities by granting SARS powers to extend prescription periods under specific circumstances, as detailed in section 99(3) and 99(4) of the TAA.

• Section 99(3): SARS can, by giving at least 30 days prior notice, extend a prescription period by a duration approximate to a delay arising from the taxpayer’s failure to provide all relevant material requested by SARS under section 46(1) of the TAA within the specified or agreed extended period, or due to the time taken to resolve a dispute concerning SARS’s entitlement to access such information. Practitioners have noted that SARS may seek to rely on this provision even where an extension for providing information was formally requested by the taxpayer, granted by SARS, and subsequently complied with by the taxpayer, which can be a point of contention.
• Section 99(4): SARS can unilaterally extend a prescription period by up to three years (for assessments by SARS) or two years (for self-assessments) by giving the taxpayer at least 60 days prior notice. This power can be exercised if an audit or investigation being conducted by SARS relates to complex matters such as the application of the doctrine of substance over form, the General Anti-Avoidance Rule (GAAR), the taxation of hybrid entities or instruments, or the application of transfer pricing provisions under section 31 of the Income Tax Act.

A decision by the Commissioner to extend prescription under these subsections constitutes administrative action and must therefore comply with the principles of lawfulness, reasonableness, and procedural fairness as enshrined in the Promotion of Administrative Justice Act 3 of 2000 (PAJA). This implies that taxpayers should, in principle, be afforded an opportunity to make representations before such an extension is finalised.

The Impact of Objections and Appeals on Section 99

The lodging of an objection or appeal by a taxpayer does not generally suspend or interrupt the initial three-year or five-year period within which SARS must issue an original assessment or an additional assessment if the grounds for doing so (e.g. discovery of new facts not amounting to FMND, or even FMND itself) exist independently of the dispute.

However, a crucial exception is found in section 99(1)(d)(iv), read with section 99(2)(b) of the TAA. These provisions clarify that the standard limitation periods in section 99(1) do not apply to an assessment issued by SARS if it is made to give effect to the outcome of a dispute resolved under Chapter 9 of the TAA. This means that if a taxpayer’s objection is disallowed and a subsequent appeal is dismissed (or if an objection is allowed in part, or an agreement is reached), SARS can issue a consequential assessment reflecting that outcome, even if the original three or five-year period for assessment has, by then, expired. This ensures that the results of the dispute resolution process can be practically implemented.

The recent judgment in TALT v CSARS (2024) further illuminated aspects of the dispute process. While primarily focused on whether a taxpayer could introduce new grounds of appeal not explicitly in the initial objection, the case operated within the framework that the outcome of an appeal could necessitate further assessment action by SARS. The court found that if an objection (e.g. on grounds of prescription) was made against a specific amount in an assessment, the taxpayer could later introduce other grounds of appeal (e.g. on the merits of the taxability of that same amount) in the Tax Court, provided it related to the same disputed part or amount.

Compass to Navigate Prescription: Key Takeaways for Practitioners

The intricacies of section 99 of the TAA present significant risks and strategic considerations for taxpayers and their advisors:

1. Accuracy is Paramount: The Spur judgment serves as a stark warning. Incorrect answers or omissions in the tax return itself can be deemed FMND, potentially negating prescription. Meticulous completion of returns, addressing all questions accurately, is non-negotiable.
2. Non-Filing is Perilous: As established in Char Trade, failure to file a required self-assessment return means the assessment prescription clock under section 99(1)(b) simply doesn’t start ticking for SARS, leading to indefinite exposure.
3. The Onus on SARS for FMND: While SARS can invoke FMND to bypass prescription, the Pear judgment (although non-binding) reinforces that SARS must objectively prove such misconduct and its materiality; a mere error or incorrectness in an assessment by the taxpayer is insufficient. Taxpayers should hold SARS to this burden of proof.
4. Vigilance Regarding Extensions: Taxpayers must be aware of SARS’s powers to extend prescription under section 99(3) and 99(4) and be prepared to engage robustly, asserting their rights to procedural fairness under PAJA.
5. Comprehensive Record Retention: Given the far-reaching implications of FMND allegations, which can effectively remove any ultimate time limit for assessment, retaining comprehensive tax records, correspondence with SARS, and supporting documentation for tax return positions indefinitely is a prudent strategy. Standard statutory record-retention periods may prove insufficient in high-risk scenarios.

Conclusion

Section 99 of the TAA attempts to strike a delicate balance between providing taxpayers with much-needed certainty regarding their past tax affairs and enabling SARS to effectively administer the tax system and collect revenue due to the fiscus. However, the numerous exceptions to the standard prescription periods, particularly the provisions relating to fraud, misrepresentation, or non-disclosure of material facts, coupled with SARS’s statutory powers to extend these timelines, mean that the shield of prescription is not absolute.

Taxpayers and their advisors must navigate this complex terrain with diligence, ensuring meticulous accuracy in all disclosures to SARS and maintaining a thorough understanding of their rights and SARS’s obligations. While the sands of prescription can indeed shift, a well-informed, compliant, and proactive taxpayer stands the best chance of finding firm ground and achieving the finality that the prescription rules aim to provide.