Brief explanation of shortfall
The shortfall is determined in terms of section 222(3) of the Tax Administration Act, 28 of 2011. That section provides for three types of shortfalls which we classify as follows:
Tax payable shortfall
This is generally the difference between the tax payable as declared by the taxpayer and the tax properly payable according to SARS.
Overstated refund shortfall
This is generally the difference between the amount claimed by the taxpayer as a refund and the refund that is due according to SARS.
Overstated losses shortfalls (like assessed losses and capital losses)
This is generally the difference between, for example, the assessed loss declared by the taxpayer and the assessed loss according to SARS multiplied by the highest applicable tax rate for the particular taxpayer. SARS’ Interpretation Note 129 gives guidance on the meaning of highest tax rate applicable to the particular taxpayer. You can access this interpretation note on SARS’s website.
Bear in mind that you may have a case where there is a tax payable shortfall and an overstated loss shortfall. Shortfall duplications of the tax payable shortfall and the overstated refund shortfall must be eliminated. SARS’ guide to understatement penalties gives guidance on the shortfalls also. You can access SARS’ guide on their website.
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