Sars cannot simply impose hefty understatement penalties

The Constitutional Court (ConCourt) has decided not to have the final say on the meaning of the crucial string of words - "bona fide inadvertent error" - even though the correct interpretation is of public importance.

- Amanda Visser

It is of public importance because it will affect how the South African Revenue Service (Sars) approaches the imposition of understatement penalties in thousands of future tax cases.

In terms of the Tax Administration Act (TAA), Sars must impose a penalty when there is an understatement that prejudices the fiscus unless the understatement was the result of a "bona fide inadvertent error".

Opposing views

There are now two opposing views on the meaning of the words - Sars's view and that of the Tax Court in the Thistle Trust case - notes Nico Theron, founder of Unicus Tax Specialists.

The main case before the ConCourt dealt with Thistle's appeal against the Supreme Court of Appeal (SCA) finding in favour of Sars. The matter dealt with the so-called conduit principle and which section of the Income Tax Act should apply to the capital gains distributed by the Thistle Trust to its beneficiaries.