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Taxpayers beware, Sars will catch up on any undeclared income

The case of a wealthy taxpayer who failed to disclose a capital gain on his 2009 tax return.
The unpaid tax on R3.6m must be paid, along with penalties and more than a decade’s worth of interest. Image: Moneyweb

A tax court judgment concerning a wealthy businessman who had repatriated to South Africa and failed to disclose that he had made a capital gain in his 2009 tax return was handed down electronically on April 23.

The taxpayer accumulated considerable wealth from businesses outside of South Africa. By 2003 his personal net worth exceeded R119 million. It is to be noted that he earned income and accumulated this wealth while he was not resident in South Africa.

In 2003 he applied for amnesty under the Exchange Control Amnesty and Amendment of Taxation Laws Act, and began the process of repatriating his wealth and assets to South Africa.

The taxpayer disclosed to the South African Revenue Service (Sars) that he held an 82% shareholding in a company by the name of BCD Corporation, an offshore company registered and incorporated in the British Virgin Islands.

The South African Reserve Bank accepted a valuation of $11 937 258 for BCD Corporation, which translated to R95 389 436 at the prevailing exchange rate.

Read: Sars hones its relationship with the rich and the super-rich

Additional assessment raised by Sars

The taxpayer had also owned 53.1% in a South African company BCD SA, and sold all 1 000 BCD SA shares to the Sail Group on January 29, 2009. The taxpayer did not disclose this in his 2009 tax return.

In terms of the sale agreement, the aggregate purchase price “due and payable to” the taxpayer for the sale of his shares was R66 364 587.

This was payable as follows:

  • R27 944 485 in cash on the implementation date, January 8, 2009.
  • R15 264 000, when the taxpayer is allotted Sail shares to the value of R16 591 304.
  • R23 156 102 payable in January 2012, subject to certain warranty clauses and breach provisions in the sale agreement.

Sars found that during the 2009 tax year the taxpayer had disposed of his shares in BCD SA, and raised an additional tax assessment for the capital gain, including penalties and interest.

Read: Sars attack on South African taxpayers abroad

The taxpayer argued that the so-called ‘warranty claims’ had reduced the share price. However, the court further concluded that all the suspensive conditions had been fulfilled when the taxpayer had been paid the first amount, and that there was no evidence before the court to show that the sales price had been reduced.

The court found that the amount of R66 364 587 had “accrued” to the taxpayer, that is, the “amount to which he was entitled”. This is based on the Lategan principle.

The court found “beyond doubt” that the taxpayer had failed to disclose to the commissioner the full circumstances regarding the sale, which he was “undoubtedly under a legal obligation to do so”.

The taxpayer had disclosed the loss on the sale of the BCD Corporation shares, and argued that this could be set off against the capital gain on the BCD SA shares.

The court agreed that “all of the shares held by the taxpayer in the group of companies should, for purposes of the assessment of CGT [capital gains tax], be treated as one ‘asset’ as defined in the Eighth Schedule” and reasoned that the “only question which remains is what is the base cost of those shares disposed of”.

The court reasoned that the taxpayer had disposed of his 28.9% shareholding to other shareholders between 2003 and 2009, reducing his shareholding to 53.1%.

“This disposal was however not disclosed to the Commissioner.” At the time of the sale in January 2009 “there were two companies left in the Group, namely BCD SA and BCD Corporation – and the taxpayer was a 53.1% shareholder in the Group”. 

Capital gain tax calculation

The court’s calculation of the capital gain and the amount liable for capital gains tax

Proceeds of sale of BCD SA shares R66 364 578
Proceeds of sale of BCD Corporation shares R9 980 300
R76 344 878
Less base cost R61 763 520
R14 581 358
Less annual exclusion R16 000
Capital gain R14 565 358
Inclusion rate of 25% R3 641 340

Capital gains tax is only payable on the ‘included amount’, which is calculated at 25% (applicable for 2009 tax year) of the capital gain.

The taxpayer is therefore liable for capital gains tax on the amount of R3 641 340.

Finality

The court ordered that the assessment is amended instead of referring the matter back to Sars, taking into account the time period of nine years which has elapsed since the revised assessment.

The court was of the view that the taxpayer should be charged additional tax (equivalent to a penalty under the current act) mainly “from his failure to disclose the disposal of his shares during the 2009 tax year”.

The taxpayer attempted to lay the blame for his omission on his professional advisors, and the court had “difficulty in understanding how the taxpayer, given his vast experience and exposure in the business world, could have been under the impression that the once-off amnesty exonerated and relieved him from acting in the future as a responsible taxpayer”.

The court reduced the 200% additional tax imposed by Sars to 25%, but did not reduce the interest imposed by Sars, except to the extent of the reduction in the penalty.

The court remitted the penalty charged by Sars for the omission to submit Vat returns, on the basis that this would be double jeopardy.

Order

The court:

  • Dismissed the taxpayer’s appeal against the revised assessment for the 2009 year.
  • Sars is to include the capital gain of R3 641 339.58 in the taxpayer’s income.
  • The 200% additional tax is to be reduced to 25%.
  • The interest is only to be adjusted in regard to the reduced penalty.
  • The penalty charged in regard to the failure to submit provisional tax returns is remitted.
  • There was no order as to costs.

Listen to Nompu Siziba’s interview with tax specialist Hugo van Zyl:

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COMMENTS   37

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Can we presume that the ANC tenderpreneurs and assorted common crooks will be looked at as closely – or is this worthy bunch off limit for
SARS ?

This is when the other rule book in the top righthand drawer of Edwardes desk gets used.

Very thin book, cover plus a contents page and then chapter 1. Blank page…….

In true Orwelian fashion, some pigs are more equal than others. So it is doubtful that any attention will be paid to the ANC facilitators of state capture while special attention will be paid to the other parties to the deal.

That’s RIGHT the “Gubment” is BROKE and they will use ALL ENFORCEMENT arms to get more money to “help the poor.” You know their poor mom’s and families. Their poor friends and business partners.Sad

Same country, on this webpage, Organs of state poured more than R49bn into criminal enterprises. Welcome home.

Next article about SARS going after anc crooks only until they are all weeded out.

That’s all South Africans care about.

In 2003 he applied for amnesty under the Exchange Control Amnesty and Amendment of Taxation Laws Act, and began the process of repatriating his wealth and assets to South Africa

Should have remained in the Caribbean and zipped it

Filed in mental cabinet marked – My Biggest Regret

So, I can assume Jacob will be audited for his Capital Gain on Nkandka!

Not in this lifetime – or at least until Jesus returns for a second round!!!!

First go fetch the stolen Tax payer money in Dubai and Pakistan.
Then do a lifestyle audit of politicians involved in corruption.
The ones that drive multi-million Rand sports cars.

The Tax payer is fed up with you.

What has SARS done about the Gupta Money laundering?

We demand same rules for every South African.

So easy to have avoided this mess. If you are genuinely non resident( day count convention test as well as ordinarily resident test passed and able to evidence)for SA tax purposes and want to return to these cursed shores simply set up an offshore trust( a genuine one with real third party trustees) before you return to hold all your assets( obviously subject to your local jurisdictions laws to get the asset into the trust).

Provided the trust is set up correctly, in a suitable jurisdiction and genuinely managed by real trustees you will only pay tax on distributions and any income or capital gains within the trust should be protected from the clutches of the ANC gang.

And if you are smart you can avoid the tax on the distributions as well….

Excellent tip Sam

Perhaps some further details? That would be great thanks

Show me the jurisdiction with truly independent trustees! Its an absolute fallacy – They all do the will and bidding of the donor or beneficiaries – All smoke and mirrors – Just hugely expensive and run by greedy lawyers pretending to be independent and pretending to protect intergenerational wealth. Who would really be stupid enough to give over control of billions or Rands or Dollars to a third party????

Let’s make a deal; I will not make use of Government services – I will have private medical aid, a private security company, use private schools and pay for my own rim repairs when it gets damaged by potholes.

In exchange all I ask is the government to wave my monthly tax obligation.

Aren’t you doing that already and paying for it with your taxes?

‘Taxation’ is theft.

Right boys, lesson learnt

Keep all sales below R66 MIL and we good

I can do that easily…….

My view is that this Capital Gains Tax is immoral to start off with because it never takes inflation into account. The very word “Capital Gains Tax” is flawed if you do not at least take inflation into account. This Act should rather be called “Selling of Assets Tax”. The greatest portion of your Capital Gains Tax (over a long period) consists of inflation and not the so called capital gain you may have made. In some cases, you will find that in real value, you may have had a loss (in real value after inflation)on that particular asset, but you are still paying huge amounts over to the Taxman, who then thanks you by squandering it for the most part.

When will we ever see an article about this government actually doing an effort of really saving money, putting in place proper tender procedures to prevent ridiculous tenders profits (and hardly ever investigated for tax) or Pravin not caving in to huge wage demands by useless non working civil servants..?

No, probably not…

Agree with you. Add to that the fact that this is a way of growing our wealth so as never to be a burden on the state. They take from me but I am not going to qualify for any grants/aid from them.

My normal tax is quite enough for these thieving clowns, but when I use my initiative, risk, skill or brains to help myself I have to give to them.

100% agree with you except for the name. It should be called an inflation gain tax. I recently sold a property of mine which cost R 1 million for R 1.4 million. It was held for about 10 years. The inflation rate over that period means that the property should have been worth at least R 2 million which means I actually made an economic loss of at least R 600k. Yet I have to pay CGT on the difference.

I spoke to Mathew Lester who served on the Katz commission about this but he dismissed it. If you have the Katz commission not understanding the problem there is not much hope for a fair outcome.

A tax revolt remains the only hope for South Africa.

Good luck with that.

Good luck to those expecting tax-use morality. Not in our lifetimes! The corruption will flow until someone turns off the ‘guaranteed’ tax tap and introduces a system forcing accountability. The Government won’t but the taxpayers might.

Another Gestapo style SARS propaganda PR stunt. Puleeeeez as blogged a few times now. SARS if you want to get results then get some runs on the board with regards to the the State Capture Crooks. You WILL NOT motivate people to pay by doing this.

You have noticed this as well.

They think PR is going to stop us doing whatever we can to do the tax revolt underway.

Not just those state capture crooks….start with all the MP’s that made fraudulent claims in the travelgate saga.

And every single politician already known to be a corrupt tenderpreneur such as Julius Malema and Floyd Shivambo.

If you don’t start there no amount of PR is going to prevent us from doing what we can to revolt

@mrjones

Totally agree.

They have to push these PR cases to scare the man in the street.

However, SARS always settles before going to court at the 11th hour because tax in itself is so controversial that get a great advocate and it won’t hold up in a court of law.

Period.

Nice racket from SARS.

Heads, you lose, tails, they win.

Capital gains tax on after taxed income, that was invested is immoral, it doesn’t matter which way you slice or dice it.

This is like chasing the ants whilst the elephants are running amok!

Can Sars please catch up on all or any undeclared income resulting from 27 years of ANC corruption, State Capture and the like by ANC cadres, Gupta Brothers, Saleem Essa, Eric Wood and all the others who have stolen SA dry.

Reading all the above-mentioned comment & valid concerns, I sit and wonder what will it take to TRIGGER a tax revolt, finally.

A tax revolt ,other than municipality taxes is unachievable in practice. Do away with all taxes but up vat to 25 pct .That’s should please the ANC with their “collective” policies

Death and Taxes is the normal phrase.

In a very skewed Socialist Environment, you get “Taxed to death, even after death” as being the reality.

It’s becomming more and more ethically acceptable to evade taxes, that will just be stolen and misused anyway.

End of comments.

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