Tax Talk

Objection to own mistakes allowable In this series of articles, Cameron Kotze – the Tax Partner at Ernst and Young – discusses some topical tax issues for our readers.

SECTION 71 of our Income Tax Act provides for the procedures to be followed when a taxpayer feels aggrieved in respect of an assessment issued by the Receiver of Revenue. In a recent tax court case in South Africa the court considered whether a taxpayer can lodge an objection against a tax assessment which includes an error made by the taxpayer when completing the original tax return.We can rely on precedents set by the South African and Zimbabwean tax courts in so far as our legislation is similar to the South African and Zimbabwean law because the tax legislation of the three countries has the same origin.The facts of the tax case referred to here were that the taxpayers carried on business in a partnership.Original tax assessments were issued for various tax years by the Receiver of Revenue.Subsequent to the tax assessments being issued, the Receiver of Revenue conducted an audit on the financial affairs of the taxpayers, which resulted in the issuing of additional assessments because in the Receiver of Revenue’s opinion certain expenses claimed in the original assessments were not allowable.As a result of the audit and the additional tax assessments the taxpayers retained the services of a firm of tax consultants to analyse the tax returns submitted and tax assessments issued.The form of tax consultants reached the conclusion that the revised assessments were erroneous for certain reasons.They also took the view that the original tax returns contained an error in that foreign exchange losses incurred by the taxpayers had not been claimed as a deduction in the original returns.Objections were lodged to the revised tax assessments by the firm of tax consultants on behalf of the taxpayers.The Receiver of Revenue considered the objections and advised that the taxpayers were not entitled to a revision of the original assessments based on the omission to claim the foreign exchange losses in the tax returns.The tax court therefore had to consider whether the taxpayers could rely on their own mistake in preparing the tax returns as a basis of objecting to the tax assessments.Section 71(1) of the Income Tax Act confers the right to object upon “a taxpayer who is aggrieved by any assessment”.The tax court held that “At first sight it does seem curious to describe a taxpayer, who has mistakenly omitted to claim a particular deduction, as aggrieved by the resulting assessment since the error is due to his own act”.The taxpayers’ representative argued that the fundamental object of the tax legislation is to ensure every person pays his dues.If the taxable income of any taxpayer has been determined erroneously, the taxpayer will always be aggrieved even if the source of the error is entirely attributable to himself.On the basis that the foreign exchange losses were properly allowable in the relevant years of assessment against the amounts which became payable in respect of the revised tax assessments, the court concluded that the taxpayers could rely on their own mistake as a basis for objection in terms of section 71 of the Income Tax Act.It is very handy to know that if you made a mistake in completing your tax return, you are entitled to object to your own mistake when you receive your tax assessment even if the tax assessment is agreement with the tax return that was submitted.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.comIn a recent tax court case in South Africa the court considered whether a taxpayer can lodge an objection against a tax assessment which includes an error made by the taxpayer when completing the original tax return.We can rely on precedents set by the South African and Zimbabwean tax courts in so far as our legislation is similar to the South African and Zimbabwean law because the tax legislation of the three countries has the same origin.The facts of the tax case referred to here were that the taxpayers carried on business in a partnership.Original tax assessments were issued for various tax years by the Receiver of Revenue.Subsequent to the tax assessments being issued, the Receiver of Revenue conducted an audit on the financial affairs of the taxpayers, which resulted in the issuing of additional assessments because in the Receiver of Revenue’s opinion certain expenses claimed in the original assessments were not allowable.As a result of the audit and the additional tax assessments the taxpayers retained the services of a firm of tax consultants to analyse the tax returns submitted and tax assessments issued.The form of tax consultants reached the conclusion that the revised assessments were erroneous for certain reasons.They also took the view that the original tax returns contained an error in that foreign exchange losses incurred by the taxpayers had not been claimed as a deduction in the original returns. Objections were lodged to the revised tax assessments by the firm of tax consultants on behalf of the taxpayers.The Receiver of Revenue considered the objections and advised that the taxpayers were not entitled to a revision of the original assessments based on the omission to claim the foreign exchange losses in the tax returns.The tax court therefore had to consider whether the taxpayers could rely on their own mistake in preparing the tax returns as a basis of objecting to the tax assessments.Section 71(1) of the Income Tax Act confers the right to object upon “a taxpayer who is aggrieved by any assessment”. The tax court held that “At first sight it does seem curious to describe a taxpayer, who has mistakenly omitted to claim a particular deduction, as aggrieved by the resulting assessment since the error is due to his own act”. The taxpayers’ representative argued that the fundamental object of the tax legislation is to ensure every person pays his dues.If the taxable income of any taxpayer has been determined erroneously, the taxpayer will always be aggrieved even if the source of the error is entirely attributable to himself. On the basis that the foreign exchange losses were properly allowable in the relevant years of assessment against the amounts which became payable in respect of the revised tax assessments, the court concluded that the taxpayers could rely on their own mistake as a basis for objection in terms of section 71 of the Income Tax Act.It is very handy to know that if you made a mistake in completing your tax return, you are entitled to object to your own mistake when you receive your tax assessment even if the tax assessment is agreement with the tax return that was submitted.* Should readers have queries, they are invited to send them to cameron.kotze@za.ey.com