Tax Talk

Beware of estimated tax assessments In this series of articles, Cameron Kotze – the Tax Partner at Ernst and Young – discusses some topical tax issues for our readers.

THE Income Tax Act empowers the Receiver of Revenue to issue estimated tax assessments where the taxpayer has failed to submit tax returns or fails to submit information requested in a tax return or is not satisfied with a particular tax return or information furnished by the taxpayer. A taxpayer may object and appeal against an estimated tax assessment issued by the Receiver of Revenue.This requires a written objection within 90 days of the assessment being issued detailing the grounds of objection in full.The onus is squarely on the taxpayer to show that the Receiver of Revenue’s estimate of the taxable income is incorrect.If the taxpayer is not able to submit documents to back up his or her arguments or “has lost the books of account” or does not keep proper books of account, he or she will have great difficulty in discharging the onus that is placed on the taxpayer in terms of section 72 of the Income Tax Act.Your behaviour in so far as it concerns compliance with the law (i.e.outstanding tax returns or major increase in wealth or major fluctuations in profit as examples) may prompt an investigation into your tax affairs.Unless you can provide adequate proof to satisfy the Receiver of Revenue that the unexplained increases is not attributable to a source that is taxable, you can expect the Receiver to issue additional assessments to remedy the alleged non-compliance of the law.The Receiver is entitled to be dissatisfied and issue an estimated assessment if you are unable to provide the information requested for purposes of an assessment albeit that your inability to comply with the Receiver’s request in itself does not necessarily constitute a transgression of the law.The tax court may set aside the estimated assessment issued by the Receiver of Revenue if the taxpayer is able to satisfy the court that he or she is in possession of adequate proof that tax returns rendered are in agreement with the taxpayer’s proof.If the estimated tax assessments provide a reasonable estimate of your sources of income based on your standard of living, the absence of proof of documents or your inability to submit proper books of account will result in the estimated assessments becoming the final assessments and you will unfortunately have to take it on the chin.This blow on the chin may just floor you and keep you down and out.The estimated assessment may include additional tax or penalties.This adds further insult to injury because the additional tax or penalties can be very unforgiving.The penalties maybe double the tax liability (i.e.effectively tax at 300 per cent) and the interest will be raised at 20 per cent per year calculated daily and compounded monthly.Make sure you understand the consequences for failing to comply with submission and payment dates in so far as it concerns tax and you won’t have to worry about a surprise punch in the belly and the ultimate upper cut on the chin.Nobody enjoys hearing the count of ten and being declared the loser if it could be avoided with proper planning and preparation for the battle.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.comA taxpayer may object and appeal against an estimated tax assessment issued by the Receiver of Revenue.This requires a written objection within 90 days of the assessment being issued detailing the grounds of objection in full.The onus is squarely on the taxpayer to show that the Receiver of Revenue’s estimate of the taxable income is incorrect.If the taxpayer is not able to submit documents to back up his or her arguments or “has lost the books of account” or does not keep proper books of account, he or she will have great difficulty in discharging the onus that is placed on the taxpayer in terms of section 72 of the Income Tax Act.Your behaviour in so far as it concerns compliance with the law (i.e.outstanding tax returns or major increase in wealth or major fluctuations in profit as examples) may prompt an investigation into your tax affairs.Unless you can provide adequate proof to satisfy the Receiver of Revenue that the unexplained increases is not attributable to a source that is taxable, you can expect the Receiver to issue additional assessments to remedy the alleged non-compliance of the law.The Receiver is entitled to be dissatisfied and issue an estimated assessment if you are unable to provide the information requested for purposes of an assessment albeit that your inability to comply with the Receiver’s request in itself does not necessarily constitute a transgression of the law.The tax court may set aside the estimated assessment issued by the Receiver of Revenue if the taxpayer is able to satisfy the court that he or she is in possession of adequate proof that tax returns rendered are in agreement with the taxpayer’s proof.If the estimated tax assessments provide a reasonable estimate of your sources of income based on your standard of living, the absence of proof of documents or your inability to submit proper books of account will result in the estimated assessments becoming the final assessments and you will unfortunately have to take it on the chin.This blow on the chin may just floor you and keep you down and out.The estimated assessment may include additional tax or penalties.This adds further insult to injury because the additional tax or penalties can be very unforgiving.The penalties maybe double the tax liability (i.e.effectively tax at 300 per cent) and the interest will be raised at 20 per cent per year calculated daily and compounded monthly.Make sure you understand the consequences for failing to comply with submission and payment dates in so far as it concerns tax and you won’t have to worry about a surprise punch in the belly and the ultimate upper cut on the chin.Nobody enjoys hearing the count of ten and being declared the loser if it could be avoided with proper planning and preparation for the battle.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com