Abstract
The 1 April 2026 amendment to the understatement-penalty regime changes the sequence of the enquiry, but not necessarily its substance. Before the amendment, a taxpayer who established that the understatement resulted from a bona fide inadvertent error (BFIE) could keep the case outside the penalty regime altogether, with the result that the section 223 behaviour classification never mattered. After the amendment, that is no longer so: SARS must now first establish that the understatement involves a listed behaviour, and BFIE survives only as a remittance ground for substantial understatement. What Parliament did not do, however, was define BFIE. The amendment therefore resolves the procedural complaint that SARS pressed in Thistle and Coronation – the behaviour fight must now be had first – while leaving unresolved the substantive question whether a taxpayer who consciously adopted a tax position can ever rely on BFIE. The practical message for taxpayers is straightforward. If there is any real uncertainty in the position to be taken in a return, the safest course is to obtain, before filing, a section 223(3)(b)-compliant opinion from an independent registered tax practitioner on full facts. Without it, a taxpayer may find itself drawn into exactly the kind of long-form dispute over behaviour classification and BFIE that careful pre-filing advice could have materially narrowed or avoided.[1]
Introduction
The amendment effected by the Tax Administration Laws Amendment Act 4 of 2026 is important, but it is easy to overstate what it actually did. It certainly altered the structure of the understatement-penalty enquiry. It did not, however, answer the deeper interpretive question that has animated the recent case law and SARS’s own guidance: what, exactly, is meant by a “bona fide inadvertent error”?
That distinction matters. It is easy to interpret the post-amendment position be that Parliament has now chosen SARS’s preferred reading of BFIE, namely that only an accidental slip, and not a consciously adopted but mistaken tax position, can qualify. The text does not go that far. The better view is that the amendment settled where BFIE now sits in the statutory architecture, but left open what BFIE means.
That is also why Thistle and Coronation remain so important. Those matters are not merely illustrations of the pre-amendment law. They expose the two different arguments SARS was trying to advance. The first was procedural: BFIE should not prevent the court from engaging the behaviour table. The second was substantive: where the taxpayer purposefully adopted the position taken in the return, the error cannot be “inadvertent” at all.[2]
The amendment answers the first point. It does not resolve the second.
The position before 1 April 2026
Before 1 April 2026, section 222(1) of the Tax Administration Act 28 of 2011 imposed an understatement penalty “unless the understatement is as a result of a bona fide inadvertent error”. In practical terms, BFIE was a true threshold exclusion. If the taxpayer brought itself within BFIE, the case fell outside the understatement-penalty regime altogether, and one never needed to reach the section 223 table.[3]
That structure explains why the old law could short-circuit the entire penalties enquiry. It also explains why SARS became increasingly dissatisfied with BFIE’s location in the statute. Once BFIE was raised successfully, the listed behaviours – reasonable care not taken, no reasonable grounds for the tax position taken, gross negligence, intentional tax evasion, and even substantial understatement – could become academic.
At the same time, the pre-amendment structure obscured an important conceptual point that remains poorly understood even now: substantial understatement is not a culpability finding in the same sense as the other entries in the section 223 table. It is an objective threshold category. SARS’s own Guide to Understatement Penalties explains that substantial understatement exists where the prejudice to SARS or the fiscus exceeds the greater of 5% of the tax properly chargeable or refundable for the relevant period, or R1 million. The same Guide stresses that a taxpayer will incur a penalty for substantial understatement “where only this circumstance prevails”. That is a crucial formulation. Properly understood, substantial understatement is residual. It becomes relevant where the prejudice is large enough, but SARS cannot prove a more blameworthy behavioural category.[4]
That residual character matters to the whole debate. If one understands substantial understatement as merely another culpability classification, the 2026 amendment appears more dramatic than it really is. But once it is seen for what it is – a large-prejudice, objective fallback category – the amendment looks rather different. It becomes a rearrangement of the order of battle, not necessarily a change in ultimate outcomes.
The two arguments SARS advanced in Thistle and Coronation
In Thistle and Coronation, SARS was effectively running two distinct, albeit related, arguments.
The first was that BFIE should not operate as a front-end escape hatch which allows a taxpayer to avoid the section 223 classification exercise altogether. That theme is unmistakable in SARS’s Constitutional Court cross-appeal submissions in Thistle. SARS argued that even if the SCA was wrong to leave the matter at BFIE, the court still had to work through the appropriate table entry and, at a minimum, substantial understatement remained in play. The same architecture underpinned SARS’s approach in Coronation.[5]
The second argument was more ambitious. SARS contended that only an “inadvertent” error can fall within BFIE and that a taxpayer who consciously adopted a tax position cannot satisfy that requirement. In its Thistle submissions, SARS argued that Thistle had “deliberately adopted a tax position” and that its conduct did not amount to an inadvertent error or innocent misstatement. In Coronation, SARS advanced the same essential proposition: a deliberately claimed exemption is the opposite of inadvertence, and producing an opinion could at best go to bona fides, not inadvertence.[6]
Those two arguments should not be collapsed into one. The first is about statutory sequencing. The second is about statutory meaning. The 2026 amendment only clearly addresses the first.
What changed on 1 April 2026
The change made by Act 4 of 2026 is textual and structural. Section 222(1) now provides that, in the event of an understatement by a taxpayer that involves a behaviour listed in the section 223 table, the taxpayer must pay the understatement penalty. The old gateway wording – “unless the understatement results from a bona fide inadvertent error” – has been deleted. Section 223(3), in turn, now provides that SARS must remit a penalty imposed for substantial understatement if the understatement results from BFIE, or if the taxpayer satisfies the statutory opinion route in section 223(3)(b).[7]
That opinion route is now central. To qualify, the taxpayer must have, by no later than the date the return was due have been in possession of an opinion by an independent registered tax practitioner that was based on full disclosure of the specific facts and circumstances and confirmed that the taxpayer’s position is more likely than not to be upheld if the matter proceeds to court.[8]
The official memorandum makes the legislative purpose plain. It states that the concept and scope of BFIE had become “contentious” and “adverse to the framework for a clear and effective understatement penalty regime” and that the amendment was intended to clarify BFIE’s scope and application by explicitly linking it to substantial understatement, which does not include a behavioural requirement but rather entails an objective calculation.[9]
In that sense, the amendment gives SARS much of what it sought procedurally. BFIE no longer stops the enquiry at the threshold. The behaviour fight must now be had first.
What did not change: the meaning of BFIE
What Parliament did not do is define BFIE. The words remain exactly where the dispute always was. The statute still does not tell us whether “inadvertent” means only an accidental slip, or whether it can bear a broader sense that includes an innocent misstatement made in good faith and without an intention to deceive.
That unresolved position was recognised in Thistle itself. The Constitutional Court held that the phrase “bona fide inadvertent error” is open to different plausible interpretations and recorded the competing positions: SARS contended that a deliberate decision to take a tax position which is ultimately shown to be incorrect cannot be an inadvertent error; Thistle argued that, even where the position is deliberately adopted, the error as to its incorrectness may still be inadvertent. The Court declined to decide that interpretive issue because it held that SARS had no sustainable penalties case on the facts in any event.[10]
That point is fundamental. Thistle did not endorse SARS’s narrow reading of BFIE. Nor did it reject it. The Court simply held that the cross-appeal failed on simpler grounds: SARS had chosen to pin its penalties case to item (iii), alternatively item (ii), of the section 223 table; SARS bore the onus of proving the facts that would bring the case within those categories; and it had no reasonable prospects of doing so. The position adopted by Thistle had been taken on legal advice, and it could not be said to be one for which there were no reasonable grounds. As for item (ii), the argument that reasonable care required the taxpayer to ignore legal advice and simply follow SARS’s own stated interpretation was described as untenable.[11]
Coronation points in the same direction. The SCA rejected SARS’s attempt to draw an adverse inference from CIMSA’s non-production of the written tax opinion and held that it was not incumbent on a taxpayer to disclose a procured opinion merely because it litigated on the strength of one. The Court further held that speculation that the undisclosed opinion must have gone against CIMSA was insufficient to attribute mala fides. On that basis the understatement penalty claim failed.[12]
None of that decides the meaning of BFIE. But it does explain why, in the typical advice-based case, the real forensic battle is often not over BFIE at all. It is over whether SARS can prove the pleaded behaviour.
Substantial understatement as a residual category
This is the point that, in my view, most needs emphasis.
Substantial understatement is commonly spoken of as though it were simply the first rung on a ladder of culpability. That is not quite right. It is better understood as a residual category which applies when two things are both true: first, the prejudice to SARS or the fiscus is objectively significant; and secondly, no more blameworthy behavioural category has been established. That is why the Guide states that the penalty for substantial understatement is attracted where “only this circumstance prevails”.[13]
Once that is appreciated, the post-2026 structure becomes easier to understand. Suppose SARS alleges reasonable care not taken or no reasonable grounds for the tax position taken. Suppose the taxpayer is able to fend off those allegations. If the prejudice is below the statutory threshold, there is no substantial understatement and there is no penalty. If the prejudice crosses the threshold, however, substantial understatement remains in play as the residual category.
That is why the amendment makes life harder for the taxpayer, even if it does not necessarily change the final answer. Before 1 April 2026, the taxpayer could seek to stay outside the regime altogether by invoking BFIE at the front end. After 1 April 2026, the taxpayer must first defeat the behavioural allegations and may then still be left facing substantial understatement solely because the prejudice is objectively large.
At that stage, unless the taxpayer has a section 223(3)(b)-compliant opinion, the remittance question returns to BFIE. And that is precisely where the unresolved meaning problem survives.
Would Thistle and Coronation really have come out differently after 1 April 2026?
Probably not in substance.
On the reasoning actually adopted in those matters, the courts would still have been confronted first with the behavioural case. In Thistle, the Constitutional Court made it plain that SARS could not prove item (iii) and had no tenable case under item (ii). In Coronation, the SCA held that SARS’s effort to infer culpability from the non-production of a written opinion was speculative and insufficient. Those are not merely BFIE findings dressed up differently. They are reasons why the behavioural case itself was weak.[14]
The route to the result would, however, have been different. The taxpayer could no longer have relied on BFIE to avoid the section 223 enquiry at the outset. It would first have had to defeat the pleaded behaviours. If only substantial understatement remained, the taxpayer would then have needed either the formal section 223(3)(b) opinion route or a court prepared to adopt a broader understanding of BFIE under section 223(3)(a).
That is why the better way to describe the amendment is not that it changes the answer in Thistle- or Coronation-type cases. Rather, it makes the taxpayer’s path to that answer longer and more demanding. The taxpayer now has to win in stages.
The real practical implication for taxpayers
The clearest practical lesson is not jurisprudential but procedural.
If there is any material uncertainty in the tax position to be adopted in a return, the prudent course is to obtain the right kind of opinion before the return is filed. Not merely some informal advice, and not an ex post facto opinion prepared once the dispute has already erupted, but an opinion that meets the requirements now codified in section 223(3)(b): independent registered tax practitioner, full disclosure, in the taxpayer’s possession by the due date of the return, and a conclusion that the position is more likely than not to be upheld.[15]
That advice does not provide a universal immunity. It will not rescue a case of gross negligence or intentional tax evasion, and the statutory remittance mechanism in section 223(3) is confined to substantial understatement. But as a practical shield it is difficult to overstate its importance. It helps the taxpayer fend off behavioural allegations; and if the matter nonetheless collapses into substantial understatement, it may provide a direct remittance route without the need to litigate the notoriously unstable meaning of BFIE.
Absent such an opinion, the taxpayer may find itself drawn into twin disputes: first, a dispute about which section 223 behaviour SARS can prove; and secondly, if only substantial understatement remains, a dispute about whether the understatement resulted from BFIE. That is precisely the sort of long-haul litigation that careful pre-filing advice may narrow, and in some cases avoid.
Conclusion
The 1 April 2026 amendment should therefore be understood with some precision. It changed procedure. It did not obviously change meaning.
What changed is that BFIE is no longer a gatekeeper to the understatement-penalty regime. The court must now work through the behaviour classification first, and BFIE survives only as a remittance ground for substantial understatement. In that respect, the amendment largely gives effect to the procedural complaint SARS advanced in Thistle and Coronation.
What did not change is the unresolved meaning of BFIE itself. Parliament did not define the phrase. The core interpretive issue remains whether a consciously adopted but mistaken tax position can still amount to a bona fide inadvertent error. That question now arises later in the enquiry, but it has not disappeared.
The practical takeaway is accordingly a sober one. Taxpayers should not assume that the 2026 amendment merely tidied up the statute. It has made litigation harder to resist procedurally. The most effective way to avoid being dragged through disputes about both behaviour classification and BFIE is to obtain, before filing, a section 223(3)(b)-compliant opinion on full facts from an independent registered tax practitioner. That will not cure every case, but it is the single best step a taxpayer can take to reduce the risk of long, expensive and avoidable understatement-penalty litigation.[16]
[1] Tax Administration Laws Amendment Act 4 of 2026, GG 54447 (1 April 2026) ss 20-21.
[2] Commissioner for the South African Revenue Service, Respondent’s Written Submissions (Cross-Appeal), The Thistle Trust v Commissioner for the South African Revenue Service (CCT 337/22) paras 11, 76-90; Commissioner for the South African Revenue Service, [Cross Appeal] Applicant Written Submissions, Practice Note and List of Authorities, Coronation Investment Management SA (Pty) Ltd v Commissioner for the South African Revenue Service (CCT 47/23).
[3] South African Revenue Service, Interpretation Note 129: Understatement Penalty – Meaning of ‘maximum tax rate applicable to the taxpayer’ 3-4.
[4] South African Revenue Service, Guide to Understatement Penalties (Issue 2) 28-30.
[5] Commissioner for the South African Revenue Service, Respondent’s Written Submissions (Cross-Appeal), The Thistle Trust v Commissioner for the South African Revenue Service (CCT 337/22) paras 76-90; Commissioner for the South African Revenue Service, [Cross Appeal] Applicant Written Submissions, Practice Note and List of Authorities, Coronation Investment Management SA (Pty) Ltd v Commissioner for the South African Revenue Service (CCT 47/23).
[6] Commissioner for the South African Revenue Service, Respondent’s Written Submissions (Cross-Appeal), The Thistle Trust v Commissioner for the South African Revenue Service (CCT 337/22) para 11 and paras 81.5, 86-88; Commissioner for the South African Revenue Service, [Cross Appeal] Applicant Written Submissions, Practice Note and List of Authorities, Coronation Investment Management SA (Pty) Ltd v Commissioner for the South African Revenue Service (CCT 47/23).
[7] Tax Administration Laws Amendment Act 4 of 2026, GG 54447 (1 April 2026) ss 20-21.
[8] Ibid s 21, substituting s 223(3)(b) of the Tax Administration Act 28 of 2011.
[9] South African Revenue Service, Draft Memorandum on the Objects of the Tax Administration Laws Amendment Bill, 2025 paras 2.21-2.22.
[10] The Thistle Trust v Commissioner for the South African Revenue Service [2024] ZACC 19 paras 83-85.
[11] Ibid paras 86-90.
[12] Commissioner for the South African Revenue Service v Coronation Investment Management SA (Pty) Ltd (1269/2021) [2023] ZASCA 10 paras 60-64.
[13] South African Revenue Service, Guide to Understatement Penalties (Issue 2) 29-30.
[14] The Thistle Trust v Commissioner for the South African Revenue Service [2024] ZACC 19 paras 87-90; Commissioner for the South African Revenue Service v Coronation Investment Management SA (Pty) Ltd (1269/2021) [2023] ZASCA 10 paras 60-64.
[15] Tax Administration Laws Amendment Act 4 of 2026, GG 54447 (1 April 2026) s 21; South African Revenue Service, Guide to Understatement Penalties (Issue 2) 35-36.
[16] Tax Administration Laws Amendment Act 4 of 2026, GG 54447 (1 April 2026) s 21; The Thistle Trust v Commissioner for the South African Revenue Service [2024] ZACC 19 paras 83-90; Commissioner for the South African Revenue Service v Coronation Investment Management SA (Pty) Ltd (1269/2021) [2023] ZASCA 10 paras 60-64.
