WC High Court judgment on penalties charged by SARS

9 February 2023

Case of Lance Dickson Construction CC v CSARS

Relevant Act(s): Tax Administration Act, 2011

Understatement penalty: Whether the Tax Court, having found that SARS had failed to establish that the taxpayer’s understatement of its taxable income resulted from a failure to take reasonable care completing its return, was nonetheless entitled to impose a 25% penalty, SARS having failed to plead a case for the imposition of a penalty on any ground other than the one it failed to prove.

Details of the case

The taxpayer did not declare the proceeds of R22 105 263 (VAT excl.) from such disposal for capital gains tax purposes in its 2017 income tax return. SARS has included the taxable capital gain from the disposal of the asset into the taxpayer’s taxable income for the 2017 year of assessment in terms of section 26A of the Income Tax Act. In addition, SARS imposed a 25% understatement penalty in terms of s222 of the TAA.

The order of the Court

The High Court found that the taxpayer has established that SARS’ decision to fix and impose an understatement penalty of 25% under item (ii) was unreasonable in the circumstances and that it would be just and equitable to order it to pay the taxpayer’s costs in the Tax Court.

You can read the details of the High Court Judgment here.

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