Court rules that revised income tax assessments must be issued within three years of the first asses

In the aftermath of the Brummeria judgment handed down by the Supreme Court of Appeal on 13 September 2007, public attention has been focused on the tax consequences of interest-free loans.
 
Mark Badenhorst, tax partner at PricewaterhouseCoopers SA, says that the judgment also makes an important pronouncement on SARS's powers to issue revised income tax assessments.
 
"In essence, if there has been no incidence of fraud, misrepresentation or non-disclosure in an income tax return, section 79(1) of the Income Tax Act allows SARS to issue a revised assessment provided it does so within three years of the first assessment." 
 
Badenhorst says the law was unclear as to whether SARS could then issue a second revised assessment (effectively a third assessment) within three years of the date of the first revised assessment. "The Brummeria judgment now clarifies the position as the Supreme Court of Appeal said in effect that the clock starts ticking away on the three years as from the date of the first assessment. So all revised assessments must be issued within three years of the original assessment."
 
In this case, the court struck down or disregarded revised assessments for the tax years 1996 1999 on the basis that the revised assessments had been issued more than three years after the original assessments. The court emphasised that the purpose of section 79(1) is to bring finality to disputes between taxpayers and SARS. The court said that "it would be unfair to an honest taxpayer if the Commissioner were to be allowed to continue to change the basis upon which the taxpayer were assessed until the Commissioner got it right". The three-year limitation, said the court, is intended to strike a fair balance between SARS's entitlement to collect taxes that are due, and the taxpayers right to finality.
 
Badenhorst says it is, however, important to note that the three year time limit on the issuing of a revised assessment does not apply to a tax return that is tainted by fraud, misrepresentation or non-disclosure of material facts. "In these circumstances, there is no time limit on SARSs power to issue a revised assessment."