How to object to your income tax assessment

You and SARS are entitled to have a difference of opinion.

This article, which was originally published in the May 2014 issue of Tax Breaks, has been updated to take later developments in SARS’ processes (and e-filing functionality) into account.

You’ve got your tax return in on time, and your tax practitioner told you that you could expect a nice little refund in time for Christmas. But we’re now in January, and no refund has been forthcoming. What’s going on?

So you log into e-filing, download your assessment, and find—horror of horrors— that instead of money coming your way, SARS actually wants you to pay money over to them!

Many people’s natural inclination is to reach for the razor blade, and then when discretion becomes the better part of valour (once you have realised that your life policy doesn’t cover suicide), you reluctantly reach towards your keyboard, about to log into your bank in order to “render unto Caesar” once again.

Stop!

The people who work at SARS are also human, and they do make mistakes. Having said that, there are also situations where you have an honest difference of opinion.

Or, as it more often turns out in the current e-filing age, the error lies with the taxpayer, the institutions providing information—or even the tax practitioner completing and submitting the return!

Where things go pear-shaped

Examples of where things can go wrong include the following:

-There was an honest mistake

Doubling-up on income, leaving out one or more deductions, or failing to take your PAYE into account are some examples of ‘finger trouble’ that can happen to the best of us.

This factor has however been greatly diminished as e-filing has been developed over the years—but this means that accuracy is more reliant on you as the taxpayer capturing your information correctly. Remember the old adage: ‘garbage in, garbage out’.

Many a dispute has been raised with SARS, only to discover that the problem is more likely to be found between the taxpayer’s seat and their keyboard!

-Exempt income is treated as taxable

This can happen more often than not as a result of the return being completed incorrectly.

For example, if you have earned dividends (which are tax-free), and you entered them on the return as interest (which is taxable), SARS cannot reasonably be expected to check that everything is in the correct box. This is a common error when it comes to unit trust distributions, where your payment includes both interest and dividends.

-Your employer makes an error on the IRP5

Employees who earn both commission and salary income often fall victim to a common error made by employers when making out the tax certificates. Commission and salary income needs to be shown separately, and if the whole lot is shown as salary, SARS will disallow the deduction of your expenses claimed against your commission income.

It’s therefore critical that you check your IRP5 certificates carefully (or have your tax practitioner go through them with you). With these certificates now being uploaded by your employer directly to SARS, getting these corrected is an almighty pain in the rear end.

-Deductions are overlooked

A commission-earner will submit a claim for various expenses incurred in the earning thereof. However, the space on the return for entering this claim is buried at the bottom of the deductions page (or, more commonly, the relevant box enabling the taxpayer to enter this information has not been clicked on the e-filing return wizard screen). It can therefore easily be overlooked.

-Certificates are omitted

If you don’t submit your retirement annuity (RA) or donations certificates, SARS will not allow the deduction. Again, this has become less of a factor with financial institutions now uploading RA certificates, but accuracy and completeness is not guaranteed.

Checking your submission

Your first port of call is to check your submitted return to ensure that what you have submitted is complete and accurate. Your tax practitioner should have done this before the return is submitted, but (in their defence) practitioners are reliant on the information that is provided by their clients.

If the error is on your side, you can submit an amended return by clicking ‘Request for Correction’ on e-filing once you have gone into ‘Returns History’ and selected the correct return type and period. This will then bring up a ‘Version 2’ which is a carbon copy of the version already submitted.

All you then need to do is to amend the incorrect information, enter anything that is missing, then click ‘submit to SARS’.

Unfortunately, you will not be able to amend any information submitted by employers or financial institutions, and you would need to contact the organisation concerned to correct and submit any amendments to SARS. In my experience, this is a lengthy and laborious process—particularly if you have since left the employer or closed your account with the institution concerned.

You will also not be able to submit a ‘Request for Correction’ once an objection has been lodged—so it’s critical that you eliminate the possibility of the error being on your side before taking the matter up with SARS.

Raising an objection with SARS

However, if the error lies clearly with SARS, getting them to correct the error is not simply case of ‘phoning them up and venting your spleen on the hapless attendant on the other end. You need to lodge a formal objection, and there are specific procedures and time frames that you need to adhere to if you want your objection to be considered.

-First steps

Before going in ‘guns blazing’ with a full-blown objection, e-filing has a facility that allows taxpayers to request reasons from SARS for issuing a particular assessment.

Although assessments provide a lot more detail than in the ‘olden days’ of the Receiver of Revenue (where you received a one-pager with a whole lot of cryptic codes on it), submitting a ‘Request for Reason’ via e-filing allows SARS to provide greater detail as to why (for example) a particular deduction claim has been disallowed.

Through this process, you might find that SARS’ reasons are justifiable, and end up either accepting SARS’ explanation or submitting a corrected return where applicable. This is far less onerous and time-consuming than submitting a formal objection. However, if you are not happy with SARS’ explanation or disagree with their reasons, your only option is to then follow the objection process.

-When you must submit your objection

Your income tax assessment has three dates printed on it.

*The ‘date of issue’ is the date upon which the assessment was generated.

*The ‘first date’ is the date from which additional interest will be calculated in the event of you failing to pay the amount due on time.

*The ‘second date’ is the date by which the amount due must be paid.

The important date for objection purposes is the date of issue, since all objections must be submitted to SARS within 30 working days of this date. Late objections will only be accepted if you provide valid reasons for the late submission thereof.

-The process of submitting an objection

SARS introduced a formal procedure for resolving tax disputes known as ‘Alternative Dispute Resolution’ (ADR) some years back.

However, this so-called ‘alternative’ process is in fact the only process that SARS recognises in practice. The old method of marking your assessment with a red pen, with the word “FIX” written in an aggressive manner, simply doesn’t wash anymore!

(Yes, I’ve done this—and no, it didn’t produce the desired response, or any response from SARS for that matter…) ADR does not take away the taxpayer’s right to have the dispute heard in court, but it is far cheaper to lodge an ADR objection than to resort to legal process. The majority of tax queries are in fact resolved using this process.

Any supporting documentation that will assist SARS in considering your objection is obviously useful, but the actual objection must be submitted on the prescribed form ADR1 (available from www.sars.gov.za or your local SARS office).

The easiest way to lodge the objection and submit supporting documents is via e-filing.

The ADR1 must also be signed / submitted personally by the taxpayer. If your tax practitioner is lodging the objection on your behalf, they may not sign the ADR1 unless you have given them a Power of Attorney to do so.

SARS has become very strict on this, and will reject any ADR forms not signed in this manner.

-When an amount owing to SARS is under dispute

If the assessment against which you are submitting an objection shows an amount owing to SARS, you need to submit a separate request for deferment of payment pending the resolution of the dispute.

While the process of doing so is easy enough via e-filing, many taxpayers (and tax practitioners) forget this additional step. If SARS does not receive a specific request to defer payment, any action that they may take to collect the amount due as per the original assessment will continue—even though the objection has not yet been responded to.

If SARS disallows your objection

If your objection is disallowed, or a revised assessment has been issued that you wish to appeal against, you need to complete a ‘Notice of Appeal’ (form ADR2) and deliver it to the office that issued the response to your original objection (or submit it via e-filing).

A facilitator must be appointed by SARS within 15 working days of receipt of your ADR notice, and SARS is required to notify you who has been appointed.

SARS may decide to call you to a meeting to discuss the matter in an attempt to resolve the dispute. If this route is taken, such meeting must take place within 20 working days of the appointment of the facilitator (or later date by arrangement between SARS and the taxpayer). The details of this meeting must be recorded in writing, and once the process has been completed, SARS has 10 working days within which to respond to you.

The entire process should therefore (at worst) take no more than 45 working days (about 2 months) from submission to completion. In practice, straightforward disputes are often resolved within a month.

There are of course numerous horror stories about documents being lost, with your query being shunted from pillar to post at your local SARS office and the Call Centre. To avoid this nightmare, make sure that you keep copies of everything that you submit to SARS, obtain reference numbers (where applicable), escalate via SARS’ internal channels—and, if all else fails, lodge a formal complaint with the Office of the Tax Ombud.

Written by STEVEN JONES

Steven Jones is a registered SARS tax practitioner, a practicing member of the South African Institute of Professional Accountants, and the editor of Personal Finance and Tax Breaks.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)