Tax complexity itself is a kind of tax
By Jerome Veldsman
New Adventure Shelf 122 v SARS, a decision of the Supreme Court of Appeal (SCA) on 28 March 2017, dealt with a taxpayer endeavouring to recoup capital gains tax (CGT) paid for the 2007 tax year on a sale of immovable property, when the sale was reversed in 2010.
The taxpayer sold the property near Stilbaai on credit to an overenthusiastic developer, who failed to obtain the necessary re-zoning, and could not pay the full purchase price.
CGT is calculated as: (sale proceeds less base cost) multiplied by the relevant effective rate of taxation.
In this instance, the sale proceeds were R17 720 000, the base cost was R7 000 000, and the relevant effective rate of taxation was (probably) 14.5%.
In 2011, the taxpayer attempted to persuade SARS to withdraw its tax assessment for the 2007 tax year, and to reduce the taxpayer’s tax liability for that year. This, SARS was not prepared to do. The taxpayer complained to all and sundry, but to no avail; applied to the High Court, Cape Town to review SARS’s decision, also to no avail; and then appealed to the SCA.
The SCA confirmed the general rule that events which may have an effect upon a taxpayer’s liability to tax are relevant only in determining his tax liability in respect of the tax year in which they occur, and cannot be relied upon to re-determine such liability in respect of an earlier tax year. The taxpayer lost, and an appeal to the Constitutional Court may be inadvisable.
At least, by agreement, when the sale was reversed, the taxpayer retained the R4 549 082 part-paid by the purchaser as damages. Further, as of the 2010 tax year, the taxpayer had an assessed capital loss of R7 000 000. However, this could be a cold comfort, as it is not certain that the taxpayer would in practice be able to benefit from the assessed capital loss.
The SCA concluded, perhaps rather unsympathetically:
“In any event, even if in certain instances it may seem ‘unfair’ for a taxpayer to pay a tax which is payable under a statutory obligation to do so, there is nothing unjust about it. Payment of tax is what the law prescribes, and tax laws are not always regarded as ‘fair’. The tax statute must be applied even if in certain circumstances a taxpayer may feel aggrieved at the outcome.“
The taxpayer was to some extent the author of its own distress. In itself, selling the property on credit was very risky, and failure to make upfront arrangements for compensation for CGT, should the transaction fail, was careless. Perhaps the purchase price had enthralled the taxpayer. It had purchased the property in 1999 for R185 000.