AUDIT OF TAX-PAYERS IN ACCORDANCE WITH THE TAX ADMINISTRATION ACT 28 OF 2011
Section 40 of the Tax Administration Act, No. 28 of 2011 (“the TAA”) states that SARS may select a taxpayer for audit on the basis of “any consideration relevant for the proper administration of a tax Act, including on a random or risk assessment basis”. This provision does not prescribe a specific time limit insofar as clarifying the issue/question of whether there is a time limit for the number of past tax years in respect of which SARS must/may conduct an audit.
The term “administration of tax Acts” is defined in section 3 of the TAA. In essence, section 3 determines that SARS must make sure that a taxpayer has complied with a relevant tax Act. The amount of time that has lapsed between the time when SARS wants to conduct the audit and when the year of assessment ended, is seemingly irrelevant to whether the taxpayer has complied with a tax Act.
As a general rule an assessment by SARS prescribes within three years from the date of assessment or, in the case of a self-assessment, within five years. However, as is generally the case in tax law, there are certain exceptions to the rule. The general rule that an assessment prescribes within three or five years (as the case may be) does not apply in circumstances where the correct amount of tax was not properly assessed due to fraud, misrepresentation or non-disclosure of material fact.
Section 171 of the TAA states that recovery steps to collect a tax debt may not be initiated any later than fifteen years form the date of assessment.
However, if SARS wishes to rely on fraud, misrepresentation or non-disclosure of material facts as basis for “lifting the veil of prescription”, then SARS bears the onus of proving those circumstances.
So, the fact that an assessment is more than three to five years old, or even 15 years old, does not mean that an audit cannot be conducted for the proper administration of a tax Act.
What about documentation that has being destroyed?
Section 95 of the TAA allows SARS to make an assessment (including an additional assessment) by way of estimate if the taxpayer has submitted information or a tax return that is incorrect or inadequate. If a taxpayer does not provide any information for purposes of SARS’ audit (because documents were destroyed), then SARS could base its additional assessment only on information available to it.
It appears in principle, that SARS may go back in time indefinitely to conduct an audit. The only impediment to them for trying to raise an additional assessment would be proving fraud, misrepresentation or non-disclosure of material fact and likely also that such additional assessment is reasonable.