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—An irreverent newsletter designed to keep you up to date—

0 1 0 4 9 8 2 4 6 2 6 8 November 2011Tax Shock, Horror newsletter by Costa Divaris Issue # 104 Database items: 9 824 Subscribers: 6 268.

Comrade General the rev Dr Prof Prince François ‘Papa Doc’ Duvalier-Leckett, spokesperson in the Office of Costa Divaris:

‘The End: This Is How It Begins’

—How many of the spendthrift, luxury-loving nabobs in government understand the significance of Moody’s down-rating? As of now, we are marching to Harare.

In this issue: Listing Notebook Briefing Davey’s Locker Evidence corner Shortcut keys in Word The Practice Manager

MONTHLY LISTING Latest Legislation & Legislative Material To Emerge Or To Be Found Since Issue # 103

This is a free publication devoted to unearthing what is going on in the SA tax field. If it isn’t here, it never happened. Unless otherwise indicated, every document listed is cumulatively included in the Tax Shock, Horror Database, which is

available monthly, quarterly or even individually on DVD by post for R161 a month inclusive of VAT at 14%. With both the newsletter & database (currently 9 824 public-access documents, 2,29 GB), you save time & bandwidth.

This is perhaps the only newsletter in the world with its own stylebook, also available free at http://www.bspseminars.co.za/BspStylebook.pdf

AD case 30 September 1993: Essential Sterolin Products (Pty) Ltd v CIR 1993 (4) SA 859 (A).

I know for a fact that I read this decision when it was first reported but, as a smart seminar attendee recently demonstrated, had forgotten it. I include it in the TSH Da-tabase because, coincidental with the codification of some of the source rules by the latest tax bills, the Monthly Notebook will soon include an item on source.

New bills November 1997: Portfolio Committee Amendments to Contingency Fees Bill, 1997 [B 33A—97]. Contingency Fees Bill, 1997 [B 33B—97]. Portfolio Committee Amendments to Contingency Fees Bill, 1997 [B 33C—97]. Contingency Fees Bill, 1997 [B 33D—97]. Why these bills? See the Monthly Notebook.

New VAT guide January 2009: AS–VAT–08 Completion of VAT registration forms—a practitioner’s guide.

GN R 1056 GG 32690 05 November 2009: Amendment of the regulations under the Trust Property Control Act. Part of my medium-term drive to collect the regulations under fiscally significant acts in one place in the TSH Database. See Lost & Found.

New form 07 February 2010: VAT 267 Declaration in respect of goods & services supplied & delivered/rendered to a CCAE (see below).*

Tax court case 01 August 2011: Case no 12856. Coppin J made heavy weather of this mining mat-ter. The Income Tax Act requires a taxpayer to determine its taxable income (which includes a negative taxable income, or assessed loss) from mining & its taxable in-come from any other trade. The s 15(a) capex deduction is ring-fenced by s 37(7C) by the taxable income from mining, after set-off of any (mining-related) balance of assessed loss brought forward. Section 37(7F) creates a similar, per-mine ring-fence. If, after both ring-fences, you are left with an assessed loss, you can set it off your taxable income from other trades. The taxpayer, SARS & the court all had differ-ent ideas about how these provisions work but it was the court that wasted the most time, with references to the Margo Commission & explanatory memoranda. Never-theless, for extraordinarily wrong reasons, it came to the right decision.*

GN R 729 GG 34596 16 September 2011: Regulations under the National Energy Act on the s 12L allow-ance in the Income Tax Act (103 TSH 2011). I now see that you had until 15 November 2011 to comment, presumably, on s 12L, which is not yet effective.*

FIC release 22 September 2011: FIC supports interventions to curb the illegal killing of rhinos. FIC release 12 October 2011: FIC reports 2010/11 statistics to SCOF.

During the course of the previous financial year, 331 referrals were made to law en-forcement agencies. During the last financial year, this number rose to 697. The mone-

http://www.bspseminars.co.za/

104 Tax Shock, Horror 2010—November—2

tary value attached to these referrals was R4,6 billion. This meant that R4,6 billion that flowed through the South Africa’s financial institutions required investigation to confirm if this was indeed the proceeds of crime.

What crap. It probably had nothing at all to do with crime. And since when, unless you are a politician/thug, does it do the slightest good to hand anything to the law-enforcement agencies?

New SARS tsatske 26 October 2011: SARS_BRS–Medical scheme fees tax credits_v1 00 Business re-quirements specification: medical scheme fees tax credit. Another one of the unfa-thomable documents marked ©. Brrrsz! (Translation available on request. But first read s 12(8) of the Copyright Act.) It initially appeared marked CONFIDENTIAL DOCU-

MENT, proving that the SARS daily wankers’ e-mail updating service (to which I do not personally subscribe, on account of copyright concerns) is fast asleep on its feet.

Treasury speech 27 October 2011: By deputy MOF at the OECD–FSB conference on financial literacy. GN R 883 GG 34704 28 October 2011: Wine export-generic promotion levy on export wine imposed un-

der the Marketing of Agricultural Products Act. GN R 884 GG 34704 28 October 2011: Information levy on grapes, grape juice concentrate & drinking

wine imposed under the Marketing of Agricultural Products Act. Sunday Times 30 October 2011: Law firm in court over RAF payout. A dispute about contingency

fees & overreaching. See the Monthly Notebook. FIC release 31 October 2011: Financial Action Task Force’s statements on the anti-money laun-

dering & counter-terror financing systems of certain jurisdictions. Corporate notice November 2011: Why, oh why can SARS not date its documents? Why oh why can it

not indicate clearly on its website what is new? By accident, & on the individuals’ tax season page, of all places, I find ‘New corporate income tax processes & proce-dures’. This announces that you are about to be hit with a new ‘structured Adobe form, IT 14SD, which allegedly will enhance your compliance.*

New form November 2011 (?): REV 1600 Claim for STT refund. PCC 09 01 November 2011: FIC releases Public Compliance Communication 09 on the iden-

tification & verification under FICA of loyalty-programme members in the casino in-dustry. I love the way these chumps proclaim all their material to be copyright. Are they planning to sell the stuff? Have they ever read s 12(8) of the Copyright Act?

Business Report 01 November 2011: Accord sets 75% target for procuring goods made in SA. Ho hum. We’ve tried this before, when it was called an ‘import replacement’ policy. Such policies have disastrous consequences, usually pushing up imports & de-pressing exports but always screwing consumers.

The Times 02 November 2011: The President, Jacob Zuma: Our view is that the executive, as elected officials, has the sole discretion to decide poli-cies for [the] government. The executive must be allowed to conduct its administration and policy-making as freely as it possibly can…. In our view, the principle of separation of powers means that we should discourage the encroachment of one arm of the state on the terrain of another, and there must be no bias in this regard. The powers conferred on the courts cannot be regarded as superior to the powers resulting from a mandate given by the people by a popular vote.

The last time he spoke along these lines (100 TSH 2011) he might have been blandly stating the obvious. Now, aided by the royal plural, the impression unmis-takably created is that the National Democratic Revolution (AKA Re-elect JZ) has no time for a real constitution. In any other country, such a man might be dangerous.

High Court case 03 November 2011: Master Currency (Pty) Ltd v CSARS (VAT 712) [2011] ZAGPJHC. Are currency-exchange services in the duty-free area of an airport zero-rated? Vic-tor J said No. First, some strange facts about the duty-free zone. In 65 TSH 2008 a SARS official revealed that the zero-rating on goods sold in duty-free shops is admin-istratively engineered, &, according to official documents, requires legislation ‘to support the practice’. Under s 9 of the Immigration Act, human beings enter & de-part from the Republic only when they pass through a ‘port of entry’. On the duty-free side of the immigration barrier, they are not in the Republic. The Customs & Excise Act has similar deeming rules for imports &, to a lesser extent, exports, while the Value-Added Tax Act follows suit. Against this background, it is surprising that SARS does not administratively regard services rendered on the duty-free side as being rendered outside SA. Back to the case. The taxpayer claimed the s 11(2)(l)(ii)(aa) zero-rating. This, pace Victor J, does not refer to ‘goods’ but to mov-able property, which includes currency. The trouble is that, in order to be zero-rated, the currency is required simultaneously to be situated inside the Republic & ex-ported to the client—while actually being situated in the duty-free zone! Victor J

erred on the movable property issue but came to an inevitable decision. As for ser-



vices rendered to nonresidents, while in the duty-free zone they are out of the coun-try under the Immigration Act (& the Income Tax Act) but in the country for VAT pur-poses. The law is a mess. The taxpayer ought to have lobbied rather than litigated.*

Treasury release 03 November 2011: Signing of the Convention on Mutual Administrative Assistance at the G 20 summit. South Africa joins twelve other countries:

The Convention seeks to promote international co-operation between revenue admini-strations in the assessment and collection of taxes. It will also encourage administrative co-operation in combating tax avoidance and evasion.

SARS release 04 November 2011: By MOF. Signing of the Convention on Mutual Administrative Assistance at the G 20 summit.*

Joint release 04 November 2011: SARS & Crime Line on another blow for rhino syndicate. Two Thai nationals arrested on suspicion of being linked to the alleged rhino-poaching ‘syndicate kingpin’, Chumlong Lemtongthai. Crow as much as you like, I say; the poachers have the upper hand. What we need is another Richard Leakey.*

High Court case 04 November 2011: 2 Productions and Another v Klugman (A605/09) [2011] ZAWCHC 419. The employment & vicarious liability case dealt with in the Monthly Notebook.

Sunday Times 04 November 2011: Adcorp says unions stifle job creation. It also disagrees with the official unemployment figures. As did ex-President Mbeki disagree, who, like humble me, without the benefit of Adcorp’s statistics, thought that, if the official figures were true, things would look very different.

GN R 939 GG 34741 08 November 2011: Amendment of the rules (DAR/92) under ss 60 & 120 of the Cus-toms & Excise Act.

FIC release 09 November 2011: FIC welcomes the launch of an online fingerprint verification system. This is a joint initiative by the department of home affairs & the South Afri-can Banking Risk Information Centre. I am prepared to be gobsmacked if it works.

Treasury release 09 November 2011: Moody’s revises SA’s A 3 rating outlook to negative from stable. Moody’s cites slower economic growth than previously expected coupled with growing political risk to low budget deficits as the main reasons for the change in outlook.

The release puts a brave face on this harbinger of impending catastrophe. Treasury speech 09 November 2011: Deputy MOF at the African Fiscal Forum on fiscal policy chal-

lenges in Africa. Moody’s Investor 09 November 2011: Moody’s changes outlook on SA’s A 3 government ratings to Service negative from stable:

The primary driver behind Moody's decision to change the outlook on South Africa’s gov-ernment ratings to negative is the rising pressure from society at large, as well as from within the ANC and its political partners, to ease fiscal policy in order to address South Af-rica’s high levels of poverty and unemployment. In Moody’s view, spending beyond the substantial amounts already budgeted in response to such demands could push debt to levels more commensurate with lower-rated sovereigns. South Africa’s direct debt and guarantees for state-owned companies' obligations currently approach or exceed 50% of GDP. Moreover, a substantial proportion of the government budget is already absorbed by wages, social support and debt service, limiting the room for new growth-supportive spending.

MPC statement 10 November 2011: Statement of the monetary policy committee (5,5%, unchanged. For the first time, my confidence in the new Guv is shaken.)

Joint release 10 November 2011: The Treasury & the IMF on the discussions by the African Fiscal Forum on fiscal policy challenges facing Africa.

Daily Views & News 11 November 2011: Brian Kantor (Investec) on the SARB’s failure to reduce the repo rate:

This is a disappointment. We had hoped for better from Governor Marcus—but we are inclined to the view that we should not now expect a more growth sensitive approach from her and her committee. It is very hard to anticipate the change in circumstances that could lead to a rate cut anytime soon. If not now then when? The inflation outlook will remain unchanged (absent of any important reversal in the rand) that can only come with an improved global growth outlook that in itself would reduce the argument for lower rates. And so we can anticipate an extended period of sub-optimal growth, inflation at or about the upper band of the tar-get range—and thus an extended period of interest rates at current levels.

Business Day 11 November 2011: Labour productivity ‘lowest in 40 years’, Adcorp says. And Dawie Roodt (Efficiency Group) adds:

The average public sector worker is paid 50% more than the private sector worker. Public sector workers earn more than entrepreneurs on average.

SCA case 14 November 2011: PPS Insurance Company v Mkhabela (159/2011) [2011] ZASCA 191. What a curious case! How could the South Gauteng High Court, Johannesburg



(three judges) allow itself to be reversed on such a fundamental issue? A daughter nominated her mother as beneficiary under a life policy—a bog-ordinary stipulatio alteri—reserving the right to change or cancel the nomination The mother accepted her nomination but then died two months before her daughter. Cachalia JA explained as follows (footnotes removed):

It is well established that a nominated beneficiary does not acquire any right to the pro-ceeds of a policy during the lifetime of the policy owner. It is only on the policy owner’s death that the nominated beneficiary is entitled to accept the benefit and the insurer is obligated to pay the proceeds of the policy to the beneficiary. Until the death of the policy owner, the nominated beneficiary only has a spes (an expectation) of claiming the benefit of the policy—the nominated beneficiary has no vested right to the benefit. It follows that if the nominated beneficiary predeceases the policy owner, she would have had no right to any benefit of the policy at the time of her death. Put simply, when the nominated beneficiary dies, the spes evaporates. It falls away. The fact that a nomi-nated beneficiary accepts the nomination cannot change this.

SARS release 14 November 2011: Three million returns submitted as deadline approaches.* Daily Views & News 14 November 2011: Brian Kantor (Investec):

South Africans have been called upon to make sacrifices in the form of slower growth for lower inflation or at least inflation in line with inflation targets, which make no sense at all. A new narrative for SA monetary policy is long overdue. This does not have to mean more inflation or more inflation expected. If the narrative recognizes and explains the facts of the matter and monetary policy were set accordingly it would mean faster and more sus-tainable rates of growth. By attracting more capital to SA to fund growth could mean a stronger rather than weaker rand over the long run and so less rather than more inflation over the long run. But this would mean recognizing that inflation targeting—given the openness of its financial and currency markets to unpredictable global forces—has not been a sound basis for monetary policy in SA.

Business Day 14 November 2011: Professor Phillip Lloyd (Energy Institute CPUT) in the letters page on the ‘huge markup’ between the factory-gate regulated price for LPG of R8,15/kg & the retail price in Gauteng of R21,60/kg.

SARB speech 15 November 2011: By the governor, on ‘Assessing the risks to the inflation out-look:the challenges to monetary policy in highly uncertain times’. Boring.

GN 804 GG 34757 16 November 2011: Notice calling for public comments on the proposed Second-hand Goods Regulations for Dealers & Recyclers, 2011.

First Trust 16 November 2011: Brian S Wesbury, my favourite economist in all the world: The bigger the government is the smaller the private sector is and the smaller the private sector is the fewer jobs an economy creates. Cutting spending should be the focus of government policy.

Business Day 16 November 2011: On the letters page, Loane Sharp (Adcorp) defends his firm’s research into the true unemployment figures. They ‘use the currency-demand method of estimating the unrecorded economy’, used by the IMF and, I can person-ally confirm, ‘pioneered in SA as early as 1989 by Prof Brian Kantor at the University of Cape Town’.

Beeld 16 November 2011: I am shaking my head in disbelief, even as I translate what is reported to have been said by Gert Jonker, Johannesburg’s Chief Magistrate:

…the corruption in Johannesburg’s magistrates’ court and various other magistrates’ courts elsewhere in Gauteng is so bad that you can describe it only as a nest of corrup-tion and dishonesty.

Treasury speech 17 November 2011: MOF on the Taxation Laws Amendment Bills, 2011. What he doesn’t say is how awful is the drafting. Much of the law is becoming unintelligible & hugely difficult to apply, all because of a bunch of uneducable idiots in the Treas-ury’s drafting shop. But I sympathize with his comments on s 45 of the Income Tax Act, on intra-group transactions:

This section was only intended to facilitate the movement of assets within a single group of companies without incurring undue tax charges. As is often the case, Government’s stated intentions and the ultimate outcomes created by high-end financiers often provide two very different results. History now indicates that section 45 has become a core acqui-sition tool in the case of leveraged buyouts of target companies.

I have recently come across evidence of Big 3½ willingness to enter into s 45 trans-actions as a buyout-mechanism in the face of the Treasury ruckus over the issue.

Daily wankers 17 November 2011: This pathetic ‘service’, the SARS ‘Daily notifications’ initiative, purports that an updated version of VAT 267 (declaration of goods & services sup-plied & delivered or rendered to a CCAE) has been issued. But the link supplied leads nowhere, and the form available on the SARS ‘forms’ page (see above) looks



suspiciously like a 2010 document. GN R 954 GG 34762 18 November 2011: Regulations under s 103 of the Administration of Estates Act.

Amendments to regulations 9, 10 and 11 of the regulations. PCC 08 18 November 2011: FIC releases Public Compliance Communication 08 on the du-

ties of estate agents, including the provisions of exemption 11 under FICA. PCC 10 18 November 2011: FIC releases Public Compliance Communication 10 on estate

agents’ clients. Treasury release 18 November 2011: Amended bank regulations to give effect to ‘Basel 2,5’. BuaNews 18 November 2011: The MOF, in Parliament, on the Taxation Laws Amendment Acts:

These Bills contain many fiscal measures that seek to facilitate growth by alleviating the burden on ordinary working citizens and by removing tax blockages that impede legiti-mate commercial goals.

What utter crap. These are perhaps the most complex & poorly drafted tax bills in history. Moreover, most of the changes made change what has already been changed, often several times over, & will doubtless be changed again. The Minister & the Treasury have no hope in Hades that harried tax practitioners & SARS’s poorly trained staff will cope with this further flood of largely aimless amendments.§

High Court case 22 November 2011: CSARS v Werner van Kets (13446/2011) [2011] ZAWCHC. Can SARS use ss 74A & 74B of the Income Tax Act to obtain information from anyone in SA in order to comply with its obligations under a tax treaty providing for the ex-change of information? It all depends upon the meaning of the term ‘taxpayer’. (At-tendees at out TAB seminars will perhaps remember that the TAB includes a new definition of this term. If you read it again, you’ll see that it is responsive to this case.) On balance, I am unpersuaded by this decision of Davis J, who answered the question in the affirmative.

SARB release 22 November 2011: Monetary policy review (§). Daily wankers 22 November 2011: The SARS ‘Daily notifications’ initiative reached a new low on

this day when it purported to disseminate updated versions of the 2009 & 2010 statutory rates! See the Monthly Notebook.

Daily Views & News 23 November 2011: Brian Kantor & Patrick Lawlor (Investec), on the movement of the rand out of a band for long reliably predicted by global equity markets:

It would appear that SA-specific forces have again entered the rand market: perhaps the Moody’s negative watch, the World Bank downgrade of its outlook for SA growth or even the secrecy bill have had some additional influence on the exchange value of the rand. This would be in addition to global risk aversion levels which are well reflected in equity markets.

GN 836 GG 34776 24 November 2011: Notice & order of forfeiture under regulation 22B of the Ex-change Control Regulations. Dr Barnett S Bergman, of Los Angeles, suffers the for-feiture to the state of R313 105,76.

GN 838 GG 34776 24 November 2011: Notice & order of forfeiture under regulation 22B of the Ex-change Control Regulations. Dr Kenneth Roland Bloom suffers the forfeiture to the state of R182 939,32. His given address gives the impression that he, too, is not liv-ing here. Perhaps coincidentally, there is someone of that name practicing in San Antonio as a pediatric cardiologist.

SARB release 24 November 2011: Discontinuation of production of the 5c coin & replacement of the 10c denomination coin.

Business Report 24 November 2011: The MOF in Parliament, on the ‘adviser community’: The aggressive undermining of the fiscus that some pursue—obviously at the receipt of a fee, even at a time of extreme fiscal stress—is extremely dangerous.… [Advisers & their clients should] pause for reflection, as we must also, on the damage they can do to the tax system, and South Africa more broadly, as the result of their practices.

The only damage to the tax system I know of is caused by Keith Engel & his merry drafting crew at the Treasury, & they are the ones giving the most oxygen to lobby-ists/advisers. It is fruitless to adopt the US legislative approach to these wide boys. You have to attack their schemes, which are reliably flawed, & jail them when they cross the line of lawfulness. But, first, whip them from the Temple’s steps.§

SCOF bill 25 November 2011: Standing Committee Amendments to Tax Administration Bill [B 11—2011]. Perhaps as many as a thousand small amendments. I’ll have to think long & hard how to update the notes for our recent seminars on this legislation. Hmmm. Did the SCOF really pen these amendments? Where did it find the time?*

New bill 25 November 2011: Final version of the Tax Administration Bill, 2011 [B 11B—2011] as introduced in the National Assembly.*

GN R 955 GG 34768 25 November 2011: Levies on broiler chickens & packed eggs under the Marketing of Agricultural Products Act.




GN R 958 GG 34768 25 November 2011: Levies on broiler chickens & packed eggs under the Marketing of Agricultural Products Act. (Don’t ask me. I only work here.)

* Found or to be found on the SARS website. § Not included in Tax Shock, Horror Database.

LOST & FOUND TSH Database This month 63 items were added to the Tax Shock, Horror Database. I have started

collecting copies of the regulations under the tax acts in a separate directory. Legis-lative publishers list them at the head of each act. Unfortunately, public-access cop-ies are not always available. Following the lead of the ‘Legal & Policy’ page on the SARS website, the directory will also include relevant Gazette notices.

Land subdivision Since 16 September 1998, the President has failed to proclaim the Subdivision of Agricultural Land Act Repeal Act 64 of 1998.

Provisional tax tables Since 25 April 2003, SARS has failed to gazette the annual provisional tax tables. PAYE tax tables Since 1 March 2011, SARS has failed to gazette the annual PAYE deduction tables. Exempt PBOs Since who knows when, SARS has ceased publishing the list of approved PBOs. The media With Beeld finally succumbing to the current newspaper malaise & downgrading its

economic & legal coverage, the title ‘best local newspaper’ defaults to Business Day; well, two pages of it, at any rate.

MONTHLY NOTEBOOK

Statutory rates 2009, 2010: As you were!

Harris Horwitz (Harris Horwitz & Co) writes:

How is this for a ‘timely’ update? We need this after all the stress we have to endure with SARS:

Welcome to South African Revenue Service update notifications system.

Pay As You Earn (PAYE)—AS–PAYE–L02—Statutory Rate 2010 Tax Year, March 2009, Updated Novem-ber 2011

Here is the official explanation: The two documents…were moved on the website to

the correct category under ‘All Publications’ as part of a routine clean-up exercise. We have mistakenly ticked the ‘send notifications’ check box, creating the impres-sion that there were changes to the documents where in fact they were only reorganized in the database. Please accept our apologies for this oversight.

SARS web team

Out of SITE, out of mind?

Reader Steven van Zyl writes:

A very large percentage of clients’ pre-populated tax returns does not reflect their SITE contributions. Even though the amount is reflected on the original IRP 5, it does not always show in the tax return.

In the tax industry, we will discover the omission by a simple calculation or just by comparing the IRP 5 with the tax return. I am wondering how many SARS em-ployees will go to the same trouble when they assist taxpayers going to the SARS offices.

My estimate is that there will be a large number of

taxpayers out there who will pay the R540 tax bill they are going to receive because they ignorantly believe that, since SARS assisted them, the outcome must be correct.

SARS refuses to do calculations, so the poor tax-payer is not even aware what is coming. Even taxpay-ers who registered themselves for eFiling will not know what to look out for.

The danger is that, because this is an electronic process, one would assume that SARS should get it right. But it seems not. Then again, maybe it is a way for SARS to balance its books!

Tax practice? I’d rather be f ishing

Vic from Cape Town says that he feels ‘moved to write again’, about three issues.

1. I have a vendor who pays in a few thousand rands every two months. It has dropped in the recession (sur-prise, surprise). Two periods ago SARS wanted a breakdown of his input VAT. It’s fairly simple, and I sent them a few lines explaining it, also mentioning the eco-nomic downturn affecting his turnover.

This last period they were at it again but now they wanted a sales breakdown. Since he keeps manual re-cords, I said they were welcome to come inspect his tax invoices—many small ones. Then they said just

send us his COS invoices (99% of input VAT). Next, I receive a call, just as I was going to submit

these, and a new chap says they want sales and COS. I tell him to send an auditor, since I don’t get paid extra

for this work, being on a retainer, and my client isn’t going to do it either. I say stuff SARS. No longer do I go out of my way to help them (for free).

2. All of a sudden I have been receiving a lot of VAT statement of accounts. These are all nil, and relate to clients who no longer exist (and are therefore not VAT-registered) or, in two instances, were never registered for VAT at all.

3. I am getting admin penalty statements of account for


matters in which the penalties have been paid but some crazy amount reflects under ’30 days’, even

though the amount due is shown as being Nil further up. The call centre confirms nothing is due.

Buying a debt for R1

Having recently gained some insight into how SARS reads s 24J of the Income Tax Act, which provides for day-by-day interest, I can tackle an issue that cropped up during one of our recent seminars.

I buy the shares and loan accounts in a dis-tressed company for, say, R100 for the shares and R1 for the previous shareholders loans of, say R1 m, to the company.

First question: does s 24J apply? First answer: No, since there is no ‘maturity’ date.

Second question: when will I pay tax? Second answer: only when I realize the R1 asset, whether

in whole or in part; that is, receive payments from the company on account of the loan.

Third question: will I pay CGT or income tax? Third answer: it depends upon the facts.

My colleague Julian Ware has a slightly different slant on this question. What if, he asks, s 24J is applied as soon as it is possible to apply it, that is, in the year or years of actual maturity?

It has been suggested that this very matter is addressed in the Taxation Laws Amendment Bill, 2011, which proposes a fresh category of instru-ment—a ‘demand instrument’. Pro tem, I disagree.

Citroën go home!

Michael Stein writes:

An interesting advert for Citroën cars on the radio and on www.citroen.co.za saying that the seller will bear the VAT on the sale (which, of course, a seller always has to do) but implying that it is giving the buyer a dis-count. I wonder how it gels with s 65 of the Value-Added Tax Act, especially s 65(iv)?

The provision referred to reads as follows:

(iv) a vendor may not state or imply that any form of trade, cash or any other form of discount or refund is in lieu of the tax chargeable in terms of sec-tion 7(1)(a).

Is there a sanction? I’ll say. Section 58(e) visits upon a contravention of s 65 and conviction a fine or imprisonment for a period not exceeding twenty-four months. Each violation would constitute a

separate offence. As if these violations were an insufficient insult to

our laws, in the Saturday Star of 12 November 2011 there appeared a full-page ad declaring:

No VAT to pay, own yours today.

In vey tiny type this statement appears:

*On the original recommended retail price including VAT and CO

2 tax. E&OE.

Yet nowhere can I find any statement bearing an asterisk. This press advert is also in violation of the other provisions of s 65 regulating how prices are to be displayed, inclusive or exclusive of VAT.

I am sure that if I went to France I would be ex-pected to obey its laws. Didn’t the arseholes re-sponsible for this ‘no VAT’ campaign wonder why no one else had thought of it before?

PAIA manuals: who will put an end to this madness?

The utterly insane and perfectly useless Promotion of Access to Information Act, in s 51, required ‘pri-vate bodies’ to compile altogether senseless manuals within six months after the commence-ment of the section.

GN 1243 GG 25410 of 29 August 2003 exempted all private bodies other than companies not being ‘private companies’ under s 20 of the Companies Act, 1973 from compiling the manual for a period of two years from 1 September 2003 to 31 August 2005.

Then GN 865 GG 27988 of 31 August 2005 ex-tended that exemption for the four months from 1 September 2005 to 31 December 2005.

More significantly, it introduced a fresh exemp-tion, to run from 1 January 2006 to 31 December 2011, for all private bodies, excluding:

Companies not being private companies as con-templated in s 20 of the Companies Act, 1973.

Private companies as there contemplated oper-ating within any of the sectors listed in Column 1 of the Schedule to the notice and having fifty or

more employees in their employment or a total annual turnover equal to or more than the appli-cable amount mentioned in Column 2 of the Schedule.

Here is the definition of a ‘private body’ in s 1:

‘private body’ means— (a) a natural person who carries or has carried on

any trade, business or profession, but only in such capacity;

(b) a partnership which carries or has carried on any trade, business or profession; or

(c) any former or existing juristic person, but excludes a public body;

I was recently asked whether a trust is included, probably on account of two possible grounds:

A trustee is often a natural person (although often not, according to supposed beneficiaries). But in the capacity as trustee, not a trader or professional.

For purposes of some statutes, a trust is a juris-



tic person. But not under the common law (77 TSH 2009).

But that’s not the point. As part of the ANC’s vision of a perfect society, unless a fresh exemption ap-

pears pretty soon, a few million people in business are going to be in breach of the law, since they sure as hell are not going to waste time on a dumb manual.

Attorneys’ & advocates’ contingency fees—Part I

A few weeks ago, I was unaware of the Contin-gency Fees Act, which applies exclusively to a ‘le-gal practitioner’, defined in s 1 (note well) as

an attorney or an advocate.

This state of blissful ignorance, I believe, makes me superbly qualified to comment on the meaning of its s 2(2), currently prominent in the news:

(2) Any fees referred to in subsection (1)(b) which are higher than the normal fees of the legal practitioner concerned (hereinafter referred to as the ‘success fee’), shall not exceed such normal fees by more than 100 per cent: Provided that, in the case of claims sounding in money, the total of any such success fee payable by the client to the legal practitioner, shall not exceed 25 per cent of the total amount awarded or any amount obtained by the client in consequence of the proceedings concerned, which amount shall not, for purposes of calculating such excess, include any costs.

What do you think it means? I have warned repeatedly in these pages of the

legal principle of interpretation that the persons you should never consult about the meaning of a stat-ute are those responsible for drafting it. Neverthe-less, decades of being baffled by arcane tax legis-lation has taught me the educational value of any crib-sheet to hand, whether by the grace of provi-dence or the said perps. In this instance, it is the ‘Memorandum on the Objects of the Contingency Fees Bill, 2007’.

There I learn something about an issue raised in a currently ongoing case about contingency fees that has hit the press with a splash (see the Monthly Listing)—the common law on the matter. According to the Memorandum:

There are common law prohibitions on contingency fees agreements between legal practitioners and their clients. Case law has also expressed some doubt re-garding the validity of contingency fees agreements.

The main purpose of the act, then, is to override the common law, at least according to the Memo-randum. Say that it errs, and there used to be room under the common law for contingency fees. What would be the effect of the act? Read the leading case on the confluence of statute and common law:

It is clear from the authorities that in our law, as in English law, the presumption that a statute alters the common law as little as possible is to be relied on only in the case of ambiguity in the statute and even then it may have to compete with other secondary canons of construction.

Glen Anil Finance (Pty) Ltd v Joint Liquidators, Glen Anil De-

velopment Corporation Ltd (In Liquidation) 1981 (1) SA 171 (A).

Not only is there no ambiguity In the Contin-

gency Fees Act about contingency fees but, as its title confirms, its specific purpose is to address this particular issue comprehensively. Surely it would displace the putative common law—by codifying it.

Next comes a shocker. According to the Memo-randum:

To avert the danger of the entire proceeds of success-ful litigation being swallowed up by’ attorneys’ and counsel’s fees. it is provided in clause 2 that the total of the uplift fees payable to both an attorney and an ad-vocate (if one is employed) be limited to 25 per cent of the proceeds of the litigation, excluding costs.

Payable to both an attorney and an advocate? Can this be, when the actual words of the statute read:

the total of any such success fee payable by the client to the legal practitioner?

Forget the gender and number clause, s 6, of the Interpretation Act. What the Memorandum is doing here is called substitution, very often a useful tool of interpretation but hugely controversial in this context. By substituting for the term ‘legal practitio-ner’ the exact content of its definition, it has ended up with:

the total of any such success fee payable by the client to AN ATTORNEY OR AN ADVOCATE!

But it has cheated, by ignoring the article ‘the’ pre-ceding the reference to ‘legal practitioner’. Articles prompt the Les Miserablian question ‘Who am I?’ (96 TSH 2011), and the answer in this instance is

the legal practitioner concerned.

Not in a million years would anyone understand that sole performer to constitute a duet! On this issue, then, the Memorandum is very probably wrong. Much, much stronger language would surely have been required to establish a maximum fee for both the attorney and the advocate.

As a lawyer would say, albeit for a much higher fee, I am fortified in coming to this conclusion by the standard contingency fees agreement set out in the regulations to the act, which clearly sees an advocate’s fees as being additional to those of the attorney.

But if both attorney and advocate were to charge on a contingency basis, the law perhaps ought to read as the Memorandum interprets it.

At first sight, amendments to s 2(2) made in the Portfolio Amendments to Contingency Fees Bill [B 33–97] (Monthly Listing) gave me hope of throw-ing some light on the intended meaning of the pro-vision but proved disappointing, being designed more to improve its language than alter its import.

In any event, it is evident from the excerpt from the Memorandum I have reproduced that Parlia-



ment was led to believe that the maximum success fee was the smaller product of the following equa-tions: Double the normal fee. 25% of the total amount awarded, excluding

costs.

Make no mistake, that is how s 2(2) appears to read. But, in Part II (below), citing the relevant case law, I challenge this view, claiming, at the very least that s 2(2) is poorly drafted. I would go so far as to say that even the idiot fiscal draftsperson would have made a better fist of it.

Home, sweet home: transfer duty, donations tax & CGT fraud

We all like to moan about corruption in the public sector, and I’ll be the first to say that, since 1992, it has become endemic and probably irreversible. But what about taxpayers who take a chance?

Consider what I think is the silly idea of selling the bare dominium in your private home to your trust while retaining the usufruct. The idea is to ‘save transfer duty’ when you, the usufructuary, die and the trust accedes to the full enjoyment of the property, ‘free of transfer duty’.

Plans that depend upon your death to reach pay-out don’t strike me as being particularly exciting. Moreover, as long as you are younger than sixty, seventy or even older, your creditors (and spouse) will retain their interest in your usufructuary rights.

But who keeps a house over a full lifetime? When it is time to sell, try and explain to the buyer why there are two sellers, not one, and explain to the beneficiaries of the trust why they are being mulcted in so much CGT.

In any event, why do you want your house in a trust in the first place? So that the Treasury can devise yet another tortuous opportunity for you to get it out again? Or so that the beneficiaries of the trust may one day hold sway over you, the now penniless founder?

Face it. The reason why you enter into such a transaction—and form a trust to carry it out—is

because some professional sold you on the idea. Don’t get me wrong. I have no problem with pro-fessionals earning a living. Caveat emptor.

But there’s a twist. What about the mortgage loan on the property? With good reason, banks hate to lend to trusts, and do you really think you can easily raise a loan on a usufructuary right?

As part of the difficult task of refinancing the property in the trust, the usufructuary is, it seems, advised to grant the trust (the bare-dominium holder) a waiver, allowing the mortgagor full access to the full value of the property in the event of de-fault. Again, what the hell, I am broadminded. There’s nothing intrinsically wrong with such an arrangement. Per ardua ad astra.

But it would affect the value of the bare domin-ium, wouldn’t it? Let’s say you valued the bare do-minium on the basis laid down in the Estate Duty Act. Although the Transfer Duty Act does not spe-cifically sanction such a valuation method, the SARS Transfer Duty Handbook (2007) certainly does. What about the value of or added by the waiver?

Should the waiver be provided to the trust free of charge, you would certainly be embroiled in an artificially priced, related-party transaction. You would certainly be liable to donations tax and CGT. And you would almost certainly be liable to be found guilty of committing fraud. Merda!

Murder, a kombi on the roof, a golf‐cart crash & a steep Camps Bay hill

At long last I can report the outcome of my en-forced visit to proceedings of the Western Cape High Court recorded in 88 TSH 2010, brought about by litigators of my acquaintance, who, tired of my constant praise of our judges, wanted me to see what really happens in court. (As if, no naïf, I don’t already know, from both personal and vicarious experience over the years!)

But why the inordinate delay? I might as well tell you the whole of this extraordinary tale.

The matter—a delictual claim—was first heard by the late Patrick Maqubela AJ, who, I am told, was a natural gentleman, who handled the proceedings with charm and fairness. His lurid murder, allegedly by his wife, and the resulting sensational press reports occasioned by her ongoing trial have cast a pall over whatever honour might have been his due as a man and a lawyer.

In the present matter, at least, he arrived unerr-ingly at the (as you will see) correct decision: the accident under review was caused solely by the negligence of the driver of a kombi minibus, and his employer was vicariously liable for his delict

(fault). The kombi had been parked on a steep hill in

Camps Bay, Cape Town. The claimant climbed in; after a short while the kombi rolled backwards—on to the roof of a house. Whose house? In an amaz-ing—some would say, provident—coincidence, it crashed, upside down, on to none other than the employer’s high-end house! The claimant was se-riously injured.

Inexplicably, the Supreme Court of Appeal granted the driver and employer leave to appeal Maqubela AJ’s finding. Thus the matter returned to the Western Cape High Court, before Desai J, Zondi J and Steyn J, unfolding in the unedifying manner I have tried to describe in 88 TSH 2010, more than adequately justifying the dark picture of judicial proceedings that had been painted for me.

In an atmosphere of near-chaos, the court seemed unprepared, and thus unable to grasp the applicable principle of law or the difference be-tween an employee and an independent contractor.

Things looked grim for the claimant. And grew worse. Month after month, the court failed to deliver



its judgment. More than one compliant was lodged through proper channels, only to be met with com-plete silence. (You have to understand the context: it might be the fairest Cape, and it might be blessed with Helen Zille, but its judges have in the past been swept by a tornado of controversy, very hard to forget when things go awry.)

But then the highly admired Traverso DJP inter-vened, promised a judgment by a particular date, apologized when there was an overshoot on that date, and then—in a no doubt unrelated incident—was struck down by an acting judge wielding a golf cart.

And then out pops the judgment of the court, de-livered by Desai J, fully vindicating my faith in our judges and our Roman-Dutch legal system.

The legal principle applicable to the facts? Res ipsa loquitur—the thing speaks for itself. This maxim signifies a rebuttable presumption of negli-gence. The kombi undoubtedly rolled backwards. The inescapable inference is that it was not in gear, and the handbrake, if applied, must have slipped. (Any trained driver would have engaged the hand-brake, put the vehicle in gear, and turned its front wheel towards the curb. This easily ascertainable fact was, to my personal chagrin, not in evidence.)

While the onus of proof of negligence rested upon the claimant, the fact that the kombi rolled backwards gave rise to a prima facie inference of negligence, which had not been rebutted before Maqubela AJ.

What, then, was the true status of the driver? It

was argued, on the strength of the dominant im-pression test, that he was an independent subcon-tractor, and not an employee. The traditional test, said Desai J, is the control test. An employee

worked under the control of another who told him or her what to do and ‘how’ and ‘when’ to do so.

I just love the way he finessed the distinction:

This [the control test] is no longer an indispensable requirement for the existence of a contract of service. It remains, however, an important indicator of the nature of the contract between the parties.

The evidence—including even the T-shirt worn by the driver—clearly indicated that he was an em-ployee.

(The great thing separating a contractor from an employee is that, while an independent contractor contracts for an outcome, an employee makes his or her work-potential available. It is essential, just as Desai J did here, to ask not whether someone is an independent contractor but whether he or she is an employee. Only if the answer is in the negative can he or she be an independent contractor.)

The driver was negligent on the job. Since he was found to be an employee, his employer was vicariously liable (86 TSH 2010, 95 TSH 2011 and 96 TSH 2011) for his negligence.

2 Productions and Another v M B Klugman (A605/09) [2011] ZAWCHC (4 November 2011). I understand that permission is being sought to appeal.

Attorneys’ & advocates’ contingency fees—Part II

According to the ‘Memorandum on the Objects of the Contingency Fees Bill, 2007’, Parliament was lead to believe that the maximum success fee un-der the Contingency Fees Act was the smaller product of the following equations:

Double the normal fee. 25% of the total amount awarded, excluding

costs.

In fact, you can read a lengthy obiter dictum to this very effect, given by Morrison AJ in Thulo v Road Accident Fund 2011 (5) SA 446 (GSJ) (15 March 2011). Unfortunately, I cannot find a public-access version of the judgment for inclusion in the TSH Database. (Full disclosure: I have interacted pro-fessionally with Les Morrison.)

This is an angry judgment, or, better, polemic, which even I know will flow off the back of the RAF—and will not be read by many other judges, perhaps the majority of whom, I am very sorry to say, regularly allow the RAF and its representatives to wreak havoc with wretched people’s lives.

In his obiter dictum, Morrison AJ first set out to

dispel the fictitious notion sometimes bandied about by practitioners of a 'common-law contingency fee',

previously

prohibited by our law. See Price Waterhouse Coopers Inc and Others v National Potato Co-Operative Ltd

2004 (6) SA 66 (SCA) (2004 (9) BCLR 930).

In the tax field what I call faux provisos—mere af-fectations or conceits deployed by the idiot drafts-person to embellish the meager fruits of his la-bours—are abundant. But, in the second leg of his discursion, Morrison AJ takes them all seriously:

The true function of a proviso is to qualify the principal matter to which it stands as a proviso—as to which see, for example, Hira and Another v Booysen and An-other 1992 (4) SA 69 (A) at 79F–J and the cases there cited. In other words, a proviso taketh away, but it does not giveth. If there is a principal matter (in this case the right to charge a success fee calculated at double—100% more than—the normal fee) it is not the function of a proviso to increase or enlarge that which it follows, it is to reduce, qualify and limit that which goes before it in the text.

Alas, he here goes too far. Hira, if you bother to look it up, dealt with ‘an excepting or qualifying proviso’, that is, a particular kind of proviso. My beloved Black’s is far more catholic (as are most sources), identifying a proviso in drafting

as a provision that begins with the words Provided that and supplies a condition, exception, or addition.

To me, a faux proviso is of the type that merely adds something to a provision and so is indistin-guishable from any other term of the law. Another such proviso is one that qualifies not what pre-



cedes or follows it but is entirely self-referent; that is, it is, again, merely yet another provision, and, if it limits anything, it limits its own content.

Thus it is neither necessary nor wise to regard as a true proviso just any form of words identifying itself as a proviso.

To me, a proviso in its pure form is a conditional or excepting stipulation. If s 2(2) includes a real proviso, the only conditionality to be found is

in the case of claims sounding in money.

Expressed as an algorithm, the proviso might properly be read as follows:

IF CLAIMS SOUND IN MONEY/LIMIT 25% LIMIT

IF CLAIMS SOUND NOT IN MONEY/LIMIT DOUBLING LIMIT

In any event, Morrison AJ himself describes the wording of s 2 as being ‘potentially ambiguous’. Moreover, in the tax field, at least, when we want to limit an amount to the smaller of two magnitudes, we say so, expressly (while both ignorantly and historically inconsistently using or instead of and as the field-limiting conjunction).

Even on his terms, both the doubling and the 25% limits of s 2(2) serve as limitations upon the empowering s 2(1), which overrides the common-law prohibition against contingency fees. As limita-tions, they may be seen as mere—and equal—terms of s 2(1), rather than a term of s 2(2) (dou-bling limit) and its limitation (25% limit).

Nor can you beg the question simply by declar-ing, as did Morrison AJ, that:

Bodily-injury claims [leveled] against the Road Acci-dent Fund invariably contain claims sounding in money.

The act is there to serve nearly all types of claims under nearly all branches of the law. (Excluded are criminal and family-law proceedings.)

Then there is the purposive argument. The attor-ney goes on risk, on a no-result, no-pay basis. At least with a claim ‘sounding in money’, what meas-ures the result more exquisitely than the damages won by the client? Limit the fee to a maximum of double the normal fee, however, and you have lost the outcome-based incentive, reverting to the dili-gent piling-up of hours.

Nevertheless, whatever might be the correct in-terpretation, as a matter of policy, I would cheerfully subscribe to Morrison AJ’s summation:

The way the law works…is that the client is assured of being paid at least 75% of the money amount obtained by successful litigation.

If only the statute had said just that! (For the benefit of those who love to mumble ci-

tations to case reports without having read them, please note that I am fully aware of judgments by Southwood AJA and Davis J in which they effectively reproduce but fail to analyze s 2(2). In Mnisi v Road Accident Fund (37233/09) [2010] ZAGPPHC 38 (18 May 2010) Southwood J goes so far as to cite his own judgment in the higher court as authority

for the reproduction!) And, Morrison AJ’s fine legal mind notwithstand-

ing, I cannot agree that s 2(2) authorizes an attor-ney to charge the maximum contingency fee al-lowed, whatever that might be, plus ‘the taxed costs to be paid by the other side’, unless merely in reimbursement.

In the calculation of the maximum fee, the simple exclusion of ‘any costs’ from

the total amount awarded or any amount obtained by the client in consequence of the proceedings con-cerned

cannot possibly amount to authority to make an addition to the maximum success fee.

What actually happens in most instances is that the attorney disburses costs on his own account—an important income tax and VAT nexus, comprising an incurral and an inward supply—and then, if suc-cessful, recovers those disbursements from the other side—a recoupment and an outward supply (under the rubric ‘insurance’).

‘Taxed costs’ will also include an allowance for the hourly fee that the attorney would have charged had he not opted instead for the success fee. That cannot possibly enure for the benefit of the attorney but must be paid to the client.

The way I read it, what Traverso AJP said in Law Society of SA and Others v Road Accident Fund and Another 2009 (1) SA 206 (C) confirms the point I am making:

in terms of the Road Accident Fund Act 56 of 1996 (the RAF Act). It has become practice for attorneys to under-take RAF work on a contingency basis. This is author-ized by the Contingency Fees Act 66 of 1997 and given recognition in s 19(d) of the RAF Act. Typically, attorneys who undertake RAF work on a contingency basis enter into contracts with their clients in which their clients agree that when their claims have been re-solved, the RAF must pay the compensation into the at-torneys' trust accounts; they are entitled to deduct from the award the fees and disbursements due to them and then pay the balance to their client.

When the RAF settles a claim, or is ordered to effect payment of a claim, it is liable for payment of the party and party costs of the successful claimant. Party and party costs typically represent 50 % to 70 % of the total of the fees and disbursements due to an attorney. A substantial portion of the costs incurred in the running of a case forms part of the attorney and client compo-nent of costs, and are not recoverable from the RAF. The same applies to disbursements such as fees of experts, which are generally taxed at a rate signifi-cantly lower than the actual fees charged. The conse-quence is that when a claim is finalized and compensa-tion paid by the RAF into an attorney’s trust account, part thereof is deducted by the attorney pursuant to his or her agreement with his or her client, and the balance is paid to the client. This system has been employed for decades and is the basis upon which attorneys un-dertake work of that nature and is the method by which claimants obtain representation in order to enable them to pursue their claims against the RAF.



Words & phrases: ‘associations’, ‘universitas’, ‘body of persons’

On the slimmest of evidence, I believe it to be dan-gerous to explore the case law on this issue earlier than Ex-TRTC United Workers Front and Others v Premier, Eastern Cape Province 2010 (2) SA 114 (ECB), on account of the adverse criticism levied by Van Zyl J against earlier decisions conflating an unincorporated association with a universitas or insisting that a universitas have a constitution.

On the substantive issue of the difference be-tween an association and a universitas, here is what he had to say (footnotes removed):

Turning to associations, they are described in The Shorter Oxford English Dictionary as ‘A body of people organized for a common purpose; a society’. Claasen provides the following description: ‘An organized body of persons who have joined together under some con-tract, statute, regulations or Rules, for the purpose of carrying out some common object.’ A distinction must be drawn between, on the one hand, corporate asso-ciations which are by virtue of legislation (statutory as-sociations) or under the common law (universitas per-sonarum) legal entities distinct from their members, and what are referred to as unincorporated associa-tions, on the other. For present purposes it is only nec-essary to deal with a universitas and an unincorporated association. The distinction between these two entities has been explained as follows in Webb & Co Ltd v Northern Rifles; Hobson & Sons v Northern Rifles: ‘An universitas personarum in Roman-Dutch law is a

legal fiction, an aggregation of individuals forming a persona or entity, having the capacity of acquiring rights and incurring obligations to a great extent as a human being. An universitas is distinguished from a mere association of individuals by the fact that it is an entity distinct from the individuals forming it, that its capacity to acquire rights or incur obligations is distinct from that of its members, which are acquired or incurred for the body as a whole, and not for the individual members.’

A universitas is therefore a separate legal entity that has perpetual succession with rights and duties inde-pendent from the rights and duties of its members. One of the most important rights of a universitas is the ca-pacity to own property. Being a legal persona, a uni-versitas may sue or be sued in its own name. It derives these characteristics from the common law and it is not necessary for it to be created by or registered in terms of a statute.

By contrast, an unincorporated association refers to an association ‘which does not have a legal persona separate from its constituent members’. ‘Corporate’ has a correspondingly opposite meaning. An unincor-porated association is regarded as merely an aggrega-tion or collection (a body) of natural persons. Accord-ingly, if the term ‘unincorporated association’ is used, it refers to nothing more than a collection of individuals who…are bound to one another by contract and who act jointly in pursuit of a common purpose. It has no existence on its own. It consequently cannot own property and has no locus standi to sue or be sued in

its own name. In legal proceedings by or against the association, every member must as a result be cited as a plaintiff or a defendant, as the case may be.

Accordingly, the feature that a partnership, a firm and an unincorporated association have in common is that they have no legal personality of their own and do not exist apart from the individuals of whom they are composed.

… A more correct statement of the law is that it may be

advisable, but not essential, [for a universitas] to have a constitution. This conforms with the manner in which all associations are formed. As the law pertaining to associations is based on a combination of Roman-Dutch law and English law, the prevailing view is that an association is formed on the basis of contract. ‘(I)t will come into being if the individuals who pro-

pose forming it have the serious intention to associ-ate and are in agreement on the essential character-istics and objectives of the universitas or unincorpo-rated association. The latter aspect is usually mani-fested by the approval and adoption of a constitu-tion.’

The primary source for determining the characteristics of the association is therefore its constitution. It pro-vides evidence of the intention of the members who contracted to form the association. What the intention of the founding members was is a factual question and, where the constitution is equivocal, or there is no writ-ten constitution, it may be determined with reference to other considerations, such as the nature of the asso-ciation, its object and its activities. For example, in Commissioner for Inland Revenue v Witwatersrand Association of Racing Clubs, the appeal court found that, despite the absence of a written constitution or rules, the respondent association complied with the requisites for a universitas. In arriving at this conclu-sion Ogilvie Thompson JA had regard to the fact that it acted as a separate entity. This was evidenced by the fact that it had a secretary, kept its funds in a separate banking account, it existed continuously for more than 30 years, the purpose for which it was formed, and the fact that it constantly pursued such purpose….

What then is a body of persons, for example, in fiscal legislation? No different, I say, from an asso-ciation, and can prove it either by searching through the case reports for the string “body of persons” or, more simply, citing s 1 of the Interpre-tation Act SV ‘person’:

‘[P]erson’ includes— (a) any divisional council, municipal council, village

management board, or like authority; (b) any company incorporated or registered as such

under any law; (c) any body of persons corporate or unincorporate;

Hold on. Corporate or unincorporate? How does that gel with Van Zyl J’s decision? Black’s agrees that an unincorporated association is not a legal entity. In what sense would it be a ‘person’?


November 2011

Evidence Corner—evidence could make a welcome change to tax cases

Yes, the policeman blundered; but does this mean the killer must go free?

by Andrew Paizes © 2011 A Paizes ([email protected])

The second leg of s 35(5) (101 TSH 2011) leads inevitably to an examination of this kind of ques-tion. It provides that unconstitu-tionally obtained evidence must be excluded if the admission of that evidence would be ‘detrimen-tal to the administration of jus-tice’. So, what does this exclusion mean? How far are we prepared to go in upholding our constitu-tional rights? How do we strike an appropriate balance between enforcing respect for those val-ues on the part of the police and inspiring respect for the judicial process in the person in the street?

It is so easy to stray too far in the wrong direction. To over-emphasize the former would lead to acquittals, on the strength of what the average person would view as a mere technicality; to over-emphasize the latter would lead to a dilution of the Bill of Rights or, even, its very negation.

In S v Tandwa & others 2008 (1) SACR 613 (SCA) the Supreme Court was faced with a situation in which highly relevant real evi-dence, pointed out by the ac-cused himself and implicating him very strongly in the commission of the crime, had been obtained as a result of an assault upon him and other improper coercive means. It had no doubt that the evidence fell to be excluded: to admit evidence procured by tor-ture, assault and beatings would violate his fair trial right at its core

and stain the administration of justice. Such means violated ba-sic civilized injunctions against assault and compulsion and brought the entire system of jus-tice into disrepute by associating it with barbarous and unaccept-able conduct.

The court accepted that the public would flinch when a court excluded evidence pointing to an accused’s guilt, but responded by maintaining that

what differentiates those committed to the administration of justice from those who would subvert it is the commitment of the former to moral ends and moral means.

We can bring about a just order only if we employ means that have moral authority. And we lose that moral authority if we con-done coercion and violence and other corrupt means in sustaining order.

Some might object and argue that we retain our moral authority if we admit the evidence and take other steps, short of exclusion, to give voice to our moral outrage. We could, for instance, discipline the offending police officers by imposing criminal sanctions. But would such a response be suffi-cient to convey our seriousness in protecting our foundational values? How effective would it be in protecting individuals against the abuse of state power? And, given the incentives that present

themselves to policemen who bring investigations to a success-ful end, how much of a deterrent would the threat of a criminal sanction be? Moreover, what kind of message would a court be sending when it convicts an ac-cused, bloodied and broken by torture, or assaults, on the strength of the evidence ex-tracted from him by that very mis-conduct?

As Cachalia JA observed in Mthembu v The State [2008] 3 All SA 159 (SCA), we are concerned with the impact of receiving the evidence, not only on the particu-lar case, but on the integrity of the administration of justice. Pub-lic policy, then, demands the ex-clusion of evidence obtained in deliberate or flagrant violation of the Constitution. In Canada the courts have looked at whether the admission of the evidence would

bring the administration of justice into disrepute in the eyes of the reasonable man, dispassionate and fully apprised of the circum-stances of the case.

The ‘reasonable man’, on such a test, would be seen as

usually the average person in the community, but only when that community’s current mood is rea-sonable.

But the South African courts have warned against too slavish an adherence to public opinion in

Feature Supplement to 104 Tax Shock Horror 2011

November 2011

this context. The courts, it has been said, should neither reflect nor disregard public opinion; their main duty is to lead it. But the second leg of s 35(5) inevitably requires some consideration of public opinion. However, as Scott JA warned in S v Pillay & others 2004 (2) SACR 417 (SCA),

reference should be had, not to an individual, but to ‘the reason-able and dispassionate members of society’.

And, as Tandwa demonstrates, there is a need for the courts to impose their moral authority by committing themselves to the achievement of moral ends by

the use of moral means. To con-done unacceptable means which might prove popular in the short term would compromise this ob-jective and cause the courts to lose their moral authority in the longer term.

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Briefing

November 2011 Medical expenses—baffling new rules

by Michael Stein © 2011 M L Stein ([email protected])

The income tax law governing the tax relief for medical expenses has become more and more complicated of late. This complexity has been compounded by a fresh set of amendments pro-posed by the Taxation Laws Amendment Bill, 2011, which will soon become law, almost certainly with-out change.

It deals differently with three types of taxpayer:

Persons aged over 65 years. Persons not aged over 65 years. Persons with a disability or a spouse or child

suffering from a disability.

And there are two types of relief:

A medical scheme fees tax credit (‘the rebate’) provided by s 6A of the Income Tax Act.

A medical expenses deduction allowed by s 18.

To further complicate matters, the law will change from 1 March 2011 (the 2012 year of assessment) and again from 1 March 2012 (the 2013 year of assessment).

Taxpayers aged over 65 The treatment of these taxpayers is the simplest. They can simply deduct all their qualifying medical expenses, as detailed in s 18(1),including all their contributions to medical schemes. They do not qualify for the rebate.

This treatment applies in both the 2012 and 2013 years of assessment.

Taxpayers not aged over 65 ears In the 2012 year of assessment these taxpayers may, under s 18, deduct their contributions to medi-cal schemes subject to the following limits, which have been increased for the 2012 year of assess-ment:

R720 a month when there are no dependants. R1 440 a month when there is the taxpayer and

one dependant. R440 a month for each additional dependant.

Dependant A ‘dependant’ of a taxpayer is defined in s 18(4A) as from the 2013 year of assessment as

the taxpayer’s spouse; his or her child and his or her spouse’s child; other members of his or her immediate family

for whom he or she is liable for family care and

support; and any other person who is recognized as his or

her dependant under the rules of a medical scheme or fund

at the time the contributions were made or medical expenses were incurred and paid.

Child A ‘child’ in relation to a taxpayer is defined in s 18(4) as the taxpayer’s child or that of his or her spouse who was alive during any portion of the year of assessment and, on the last day of the year of assessment, was unmarried and was not or would not, had he or she lived, have been

over the age of 18 years; over the age of 21 years and wholly or partially

dependent for his or her maintenance upon the taxpayer and not liable for the payment of nor-mal tax in that year; or

over the age of 26 years and wholly or partially dependent for his or her maintenance upon the taxpayer, not liable for the payment of normal tax in that year, and a full-time student at an educational institution of a public character.

The definition also includes the taxpayer’s child or that of his or her spouse, of any age, who was alive during any portion of the year of assessment and was incapacitated by a disability from maintaining himself or herself and wholly or partially dependent for maintenance upon the taxpayer and did not become liable for the payment of normal tax in that year.

Additional deduction In addition to this deduction for contributions to a medical scheme, the taxpayer is in the 2012 year of assessment entitled to a deduction for the bal-ance of his or her contributions to medical schemes plus qualifying medical expenses. This deduction is limited to so much of these amounts as in the aggregate exceeds 7,5% of the tax-payer’s taxable income (excluding any retirement fund lump sum benefit and retirement fund lump sum withdrawal benefit) as determined before al-lowing any deduction under s 18.

In the 2013 year of assessment this taxpayer will be entitled to deduct the rebate for contributions to a medical scheme from his or her liability for nor-mal tax. The amount of this rebate is:

mailto:[email protected]

November 2011

R216 a month when there are no dependants. R432 a month when there is the taxpayer and

one dependant. R144 a month for each additional dependant.

A ‘dependant’ is defined in s 6A for this purpose as a dependant as defined in s 1 of the Medical Schemes Act 131 of 1998.

He or she can then, in addition, and subject to the limitation that follows, deduct the following amounts under s 18:

The amount by which his or her contributions to medical schemes exceeds four times the amount of the rebate allowable to him or her; plus

all his or her other qualifying medical expenses.

The sum of these amounts is deductible to the ex-tent that it exceeds 7,5% of his or her taxable in-come (excluding any retirement fund lump-sum benefit and retirement fund lump-sum withdrawal benefit) as determined before account is taken of a deduction under s 18.

Say the contributions for the year exceed four times the rebate by R15 000 and the other medical expenses amount to R12 000, giving a total of R27 000. The deduction allowed under s 18 is the amount by which R27 000 exceeds 7,5% of the taxpayer’s qualifying taxable income.

A disability in the family A taxpayer who suffers from a disability or whose spouse or child is a person with a disability may in the 2012 year of assessment deduct all qualifying medical expenses, as detailed in s 18(1), including all contributions to medical schemes.

The position is slightly more complicated in the 2013 year of assessment. In this year such a tax-payer may deduct the rebate at the rates detailed above and may in addition deduct under s 18 the amount by which contributions to medical schemes exceed four times the amount of the rebate allowed plus all other qualifying medical expenses. The ‘7,5% limitation’ does not apply to these taxpayers.

Say the contributions for the year exceed four times the rebate by R15 000 and the other medical expenses amount to R12 000, giving a total of R27 000. The deduction allowed under s 18 is the full amount of R27 000.

A ‘disability’ is defined in s 18(3) for the pur-poses of s 18 as a moderate to severe limitation of a person’s ability to function or perform daily activi-ties as a result of a physical, sensory, communica-tion, intellectual or mental impairment, if the limita-tion has lasted or has a prognosis lasting more than a year and is diagnosed by a duly registered medical practitioner in accordance with criteria prescribed by the Commissioner.

Qualifying medical expenditure I have mentioned that targeted medical expenses qualify for deduction under s 18. This expenditure is detailed in s 18(1)(b), (c) and (d).

It covers nonrecoverable amounts paid by the taxpayer during the year of assessment to a duly

registered medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist, physiotherapist, chiropractor or orthopaedist for professional services rendered or medicines sup-plied to the taxpayer, his or her spouse, his or her children or his or her dependants.

It also covers nonrecoverable amounts paid to a nursing home or hospital or a duly registered or enrolled nurse, midwife or nursing assistant (or to a nursing agency for the services of a nurse, midwife or nursing assistant) on account of the illness or confinement of the taxpayer, his or her spouse, his or her children or his or her dependants.

And it also covers nonrecoverable amounts paid to a pharmacist for medicines supplied on the pre-scription of a qualifying person for the taxpayer, his or her spouse, his or her children or his or her de-pendants.

Also covered are nonrecoverable amounts paid by the taxpayer during the year of assessment for expenditure incurred outside the Republic on ser-vices rendered or medicines supplied to the tax-payer or his or her spouse or children or his or her dependants that are substantially similar to the services and medicines for which a deduction may be claimed under these rules.

Finally, it covers nonrecoverable expenditure necessarily incurred and paid by the taxpayer in consequence of a physical impairment or disability suffered by the taxpayer, his or her spouse or child, or his or her dependants.

SARS issued its latest list of qualifying physical impairment or disability expenditure on 25 October 2011 (103 TSH 2011).

Employees’ tax In the 2012 year of assessment an employer may take into account in the determination of the bal-ance of remuneration subject to the deduction of PAYE under para 2(4) of the Fourth Schedule to the Income Tax Act any contribution by an employee aged over 65 to a medical scheme paid by the em-ployer or, if the employer chooses, that the em-ployee proves have been paid by him or her. The employer may also do so, subject to the deductible limits under s 18, for contributions when the em-ployee is younger.

In the 2013 year, while the employer may con-tinue to take into account for PAYE purposes contri-butions when the employee is aged over 65, the employer may no longer take them into account in the determination of the employee’s balance of remuneration when he or she is younger. Instead, the employer may deduct the applicable rebate from the calculated tax under para 9(6).

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Davey’s Locker

November 2011 SARB voluntary disclosure program The post-VDP position

by Tony Davey © 2011 A H Davey ([email protected] www.tonydavey.com)

As mentioned in 103 TSH 2011, a permanent voluntary disclosure programme (VDP) is instituted in the Tax Administrative Bill, which will probably be enacted in the first quarter of 2012. This relief, which applies to all ‘tax Acts’ (excluding the Customs and Excise Act) does not extend to Excon breaches monitored by the South African Reserve Bank (SARB).

A reader has enquired what is the position with SARB for those who missed the 31 October 2011 Excon VDP deadline, bearing in mind that, as an exception to the SARS secrecy provisions in the Income Tax Act, SARS may dis-close information to SARB.

My informal information from SARB is that there is now no re-lief, and it is a matter for negotia-tion within broad guidelines.

Those voluntarily requiring regularization for Excon breaches will be required, by affidavit, to detail the contraven-tions involved and provide the description, location and value of unauthorized foreign assets. You will be spared criminal prosecu-tion but a levy of 20% to 40% of foreign assets will be imposed, with no credit or set-off for the current R4 million foreign in-vestment allowance. Advance anonymous applications will not be considered, so hiding in the

shadow of legal privilege is of little use.

Allowance increased Just after the medium-term Budget policy statement the Na-tional Treasury issued a state-ment entitled ‘Further informa-tion on investment and pruden-tial regulatory announcements in 2011 MTBPS’,

It is proposed for individuals that the annual R4 million foreign investment allowance plus the current R1 million single discre-tionary allowance be consoli-dated into an annual R5 million foreign investment allowance.

The additional R1 million al-lowance currently includes travel, alimony, foreign gifts and the like.

This all sounds like good news but bear the following in mind: The foreign investment allow-ance (currently R4 million) re-quires as a precondition for ap-proval by SARB a SARS tax clear-ance, while the discretionary allowance (R1 million) does not.

As the discretionary allowance falls away and is absorbed into a single investment allowance, tax clearance is bound to be re-quired. If I am correct, maybe an exempt threshold for emergency travel should be allowed.

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November 2011

Evidence Corner—evidence could make a welcome change to tax cases

Yes, the policeman blundered; but does this mean the killer must go free?

by Andrew Paizes © 2011 A Paizes ([email protected])

The second leg of s 35(5) (101 TSH 2011) leads inevitably to an examination of this kind of ques-tion. It provides that unconstitu-tionally obtained evidence must be excluded if the admission of that evidence would be ‘detrimen-tal to the administration of jus-tice’. So, what does this exclusion mean? How far are we prepared to go in upholding our constitu-tional rights? How do we strike an appropriate balance between enforcing respect for those val-ues on the part of the police and inspiring respect for the judicial process in the person in the street?

It is so easy to stray too far in the wrong direction. To over-emphasize the former would lead to acquittals, on the strength of what the average person would view as a mere technicality; to over-emphasize the latter would lead to a dilution of the Bill of Rights or, even, its very negation.

In S v Tandwa & others 2008 (1) SACR 613 (SCA) the Supreme Court was faced with a situation in which highly relevant real evi-dence, pointed out by the ac-cused himself and implicating him very strongly in the commission of the crime, had been obtained as a result of an assault upon him and other improper coercive means. It had no doubt that the evidence fell to be excluded: to admit evidence procured by tor-ture, assault and beatings would violate his fair trial right at its core

and stain the administration of justice. Such means violated ba-sic civilized injunctions against assault and compulsion and brought the entire system of jus-tice into disrepute by associating it with barbarous and unaccept-able conduct.

The court accepted that the public would flinch when a court excluded evidence pointing to an accused’s guilt, but responded by maintaining that

what differentiates those committed to the administration of justice from those who would subvert it is the commitment of the former to moral ends and moral means.

We can bring about a just order only if we employ means that have moral authority. And we lose that moral authority if we con-done coercion and violence and other corrupt means in sustaining order.

Some might object and argue that we retain our moral authority if we admit the evidence and take other steps, short of exclusion, to give voice to our moral outrage. We could, for instance, discipline the offending police officers by imposing criminal sanctions. But would such a response be suffi-cient to convey our seriousness in protecting our foundational values? How effective would it be in protecting individuals against the abuse of state power? And, given the incentives that present

themselves to policemen who bring investigations to a success-ful end, how much of a deterrent would the threat of a criminal sanction be? Moreover, what kind of message would a court be sending when it convicts an ac-cused, bloodied and broken by torture, or assaults, on the strength of the evidence ex-tracted from him by that very mis-conduct?

As Cachalia JA observed in Mthembu v The State [2008] 3 All SA 159 (SCA), we are concerned with the impact of receiving the evidence, not only on the particu-lar case, but on the integrity of the administration of justice. Pub-lic policy, then, demands the ex-clusion of evidence obtained in deliberate or flagrant violation of the Constitution. In Canada the courts have looked at whether the admission of the evidence would

bring the administration of justice into disrepute in the eyes of the reasonable man, dispassionate and fully apprised of the circum-stances of the case.

The ‘reasonable man’, on such a test, would be seen as

usually the average person in the community, but only when that community’s current mood is rea-sonable.

But the South African courts have warned against too slavish an adherence to public opinion in


November 2011

this context. The courts, it has been said, should neither reflect nor disregard public opinion; their main duty is to lead it. But the second leg of s 35(5) inevitably requires some consideration of public opinion. However, as Scott JA warned in S v Pillay & others 2004 (2) SACR 417 (SCA),

reference should be had, not to an individual, but to ‘the reason-able and dispassionate members of society’.

And, as Tandwa demonstrates, there is a need for the courts to impose their moral authority by committing themselves to the achievement of moral ends by

the use of moral means. To con-done unacceptable means which might prove popular in the short term would compromise this ob-jective and cause the courts to lose their moral authority in the longer term.

t s h

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2. Receive, in hardcopy or electronic form (sometimes both), all notes and other publications published by Bsp Seminars, whether or not you attend particular seminars (normal price: R825 each for non-

attendees).

3. Receive the monthly Tax Shock Horror Database on DVD in the first week of every month, providing you with a record of nearly 10 000 public-access documents on tax and related fields (normal price: R161

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5. Receive the monthly Tax Shock Horror Newsletter by email on the first business day of every month, comprising Monthly Listing, Monthly Notebook, Cases, Briefing, Davey's Locker, Evidence Corner &

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Shortcut Keys in Word by Duncan S McAllister ©2011

November 2011

Finding stuff—VII (Word 2010)

Word 2010 introduces an alternative way of finding text in a document. The new method takes the form of a navigation pane which appears on the left-hand side of the screen when you press CTRL + F. The conventional Find dialog box is still there, but you can no longer reach it using CTRL + F. In order to access it you must now press CTRL + G to open the Go To dialog box and then press CTRL + Page Down to select the Find tab. Alternatively, you can use ALT, E, F. From there the procedure is the same as in Word 2007.

When it comes to the taskpane it’s a case of one man’s meat is another man’s poison. Personally, I prefer the old dialog box because it offers more advanced Find features (for example, for finding formatting). I also find that the task pane takes up quite a bit of the screen. You can reassign CTRL + F to the Find dialog box and thus avoid the navpane by following these steps:

1. Press ALT to put focus on the Ribbon 2. Press the right-click key (usually on the left of the ctrl

key on the right-hand side of the keyboard)

3. Press R to select Customize the Ribbon 4. Press ALT + T to select the Customize button for

keyboard shortcuts 5. Press H to select the Home tab 6. Press TAB and then press E four times to select the

EditFind command. 7. Press ALT + N (or TAB twice) to reach the ‘Press

new shortcut key’ box and press CTRL + F 8. Press Enter twice, TAB until you reach OK and press

Enter again

In order to restore CTRL + F to the navigation pane, perform the above procedure but instead of press-ing E four times to select the EditFind command, press N to select NavPaneSearch.

Navigation pane The shortcut keys for the search navigation pane are set out below.

After you press CTRL + F the cursor will appear in the search box and you can simply enter your text and press enter to commence your search. To navigate within the navigation pane use the TAB key.

NavPaneSearch shortcut keys

CTRL + F Open the ‘search’ navigation pane CTRL + SPACEBAR, C Close the navigation pane F6 Place focus on the navigation pane Search box Enter search text TAB once to put focus on the search split but-ton, then press:

O Options – see below for commands to select check boxes A Advanced Find (the old Find dialog box in Word 2007) R Replace G Go To R Graphics T Tables E Equations N Footnotes/Endnotes

Feature Supplement to 104Tax Shock Horror 2011

November 2011

C Comments A (submenu of C) All Reviewers TAB Browse the headings in your document TAB twice Browse the pages in your document TAB thrice Browse the results from your current search

Options check boxes Use the up or down arrow keys to navigate to a particular check box and press spacebar to check or un-check it or use these shortcuts):

Options check boxes

ALT + H Match case ALT + Y Find whole words only ALT + U Use wildcards ALT + K Sounds like (English) ALT + W Find all word forms

(English) ALT + X Match prefix ALT + T Match suffix ALT + S Ignore punctuation

characters ALT + A Ignore white-space

characters

ALT + G Highlight all ALT + R Incremental find ALT + D Set as Default button SPACEBAR OK SPACEBAR CANCEL

t sh

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Feature Supplement to 104Tax Shock Horror 2011

The Practice Manager

November 2011 by Eric Milner

© 2011 E Milner ([email protected])

Liability of the tax practitioner: Beware! Recently, I heard an amazing story from a tax practitioner. As the accountant for her clients, she allowed herself to be designated as the public officer of their companies. One of her clients had an outstanding tax balance due to SARS. In order to settle the outstanding amount, SARS whipped the funds out of her personal account, without even notifying her that it intended to hold her liable in her capacity as public officer.

When I indignantly enquired whether she had challenged SARS on this outrageous behaviour, she replied that she had thought about it but decided that it was easier to recover the money from the client. Nevertheless, she assures me that she now has learnt her lesson, and will not act as the public officer for her clients.

Luckily for her, the incident did not cost her any money in the end but it set me thinking about the liability that tax practitioners have assumed in the last few years on behalf of their clients. Clearly, we (now?) know not to act as public officers, but what about when we submit tax returns?

Before the introduction of eFiling the norm was for practitioners to have their clients sign their tax returns, the theory being that, once taxpayers had signed their returns, they warranted that the information supplied was correct, and the tax practitioner was off the hook, so to speak. Since the introduction of eFiling, however, practitioners now submit most, if not all, of their client’s returns via eFiling.

The SARS Guide for Practitioners—Filing Returns in 2007 includes the statement that:

Using the eFiling channel does not impose greater accountability or liability on you than one of our manual channels.

A similar statement is provided in the SARS publication Practitioners Engaging with SARS—An Overview Guide, of August 2008:

In essence, as long as the information on the return accords with the taxpayers’ instructions and there is no dishonesty on the part of the practitioner, practitioners cannot incur any liability.

But is this assurance true? Section 66(7A) of the Income Tax Act provides that:

The Commissioner may, in the case of any return

furnished by a taxpayer or a taxpayer’s authorized agent in electronic format, accept electronic or digital signatures as valid signatures.

And s 66(7B) provides that:

The Minister may make rules and regulations prescribing the procedures for submitting any return in electronic format and the requirements for an electronic or digital signature contemplated in subsection (7A).

The Minister has in fact duly issued regulations prescribing the procedure and requirements referred to (GG 25557 of 8 October 2003; 103 TSH 2011), including this on electronic signatures:

4. (1) When an electronic return submitted by means of the e-filing service is received on the e-filing website, the electronic signature of the taxpayer or tax practitioner is electronically attached to that return.

(2) An electronic signature of a taxpayer or tax practitioner as contemplated in regulation 4(1) consists of the user-ID of that taxpayer or tax practitioner together with the date and time that the return was received on the e-filing website.

(3) An electronic signature attached to a return as contemplated in regulation 4(1), is deemed to have been attached to that return by the person who submitted that return by way of the e-filing service.

Thus it would seem that the submission of a return via eFiling is the same as signing the return for the purposes of the act (provided that the eFiling system records the information required by the Gazette).

Section 66(6) provides that:

any person signing any…return shall be deemed for all purposes in connection with this Act to be cognizant of all statements made in that return.

Section 104(1)(a) provides that:

Any person who with intent to evade or to assist any other person to evade assessment or taxation…signs any statement or return so rendered without reasonable grounds for believing the same to be true…shall be guilty of an offence.

It seems to me that the liability placed upon the tax practitioner by this provision differs vastly (a) when the tax practitioner signs (submits via eFiling) the


November 2011

return and (b) when he or she merely fills in the return. On signing a return, he or she needs to have reasonable grounds for believing the contents to be true. On filling-in a return, he or she incurs criminal liability only if he or she

makes or causes or allows to be made any false statement or entry in any return rendered in terms of this Act.

Although s 104(2) provides that

any other person who made any such false statement or entry shall be presumed, until the contrary is proved, to have made such false statement or entry with intent to assist the taxpayer to evade assessment or taxation,

in a criminal case constitutional issues could well arise, because of the reversal of onus.

Thus it would seem that the signing of a return places a positive duty upon the tax practitioner to ensure that he or she has reasonable grounds for believing its contents to be correct, while its completion requires only that the tax practitioner not knowingly make a false statement.

In addition to these provisions, anyone using e-Filing is bound by the terms and conditions attached to its use and as provided on the eFiling website. Of particular interest is clause 17.1.2, which deals with tax practitioners (eFiling agents):

By submitting any information to SARS by means of the eFiling service, the eFiler confirms that, to the best of the eFiler’s knowledge, such information has been provided by the taxpayer to the eFiler, is correct and complete and that all income and information relevant thereto provided by the taxpayer to the eFiler, is

disclosed to SARS.

I have noticed that, upon submission of the IRP 5 reconciliations, a statement comes up on the screen before you can press the SUBMIT button reading as follows:

I hereby declare that this statement is true and correct, that all tax required has been deducted and declared and that all payments declared have been made. I hereby accept liability for any difference.

In the first instance, the tax practitioner is confirming that the information is ‘correct and complete’, and, in the second, accepting liability for any tax not paid!

With the aggressive approach adopted by SARS towards the collection of tax and its willingness to ignore any constitutional rights that taxpayers might enjoy, is it safe to rely on the somewhat dated assurances by SARS that it will not seek to impose liability on the tax practitioner?

As may be seen from the attempt contained in the long-dormant Regulation of Tax Practitioners Bill by SARS to require tax practitioners to investigate their clients, SARS clearly labours under the misconception that tax practitioners have statutory powers to compel their clients to disclose information to them.

Conclusion Despite the assurances by SARS to the contrary, there is ample reason for tax practitioners to be concerned about the additional liability assumed as a result of using eFiling.

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