In the recent seminal judgment of the Pretoria High Court[1], hereinafter referred to as “the Pienaar Brothers Case”, the court reaffirms the importance of taking notice of not only changes in tax law but also proposed changes to tax law and the need to plan accordingly. Failing to do so may have devastating consequences for taxpayers, as it did for the taxpayer in the Pienaar Brothers case who was left out of pocket by a couple of million rand.

In short, the taxpayer in the Pienaar Brothers Case was held liable by SARS for STC which it had not taken into account in determining its selling price for a business because at the time of the transaction, the legislation allowed for an exemption/exclusion for STC. However, following promulgation of the 2007 Amendment Act, a couple of months after the taxpayer had concluded the transaction, this exemption/exclusion (more accurately described as a “loophole”) was removed retrospectively to a date before the taxpayer’s transaction was concluded. In layman’s terms, the court, in its over 150-page judgment, held that the retrospectivity of the amendment was perfectly lawful – the taxpayer was sufficiently forewarned of the impending change in, amongst others, the budget speech.

While retrospective tax legislation may indeed seem unfair, the court in the Pienaar Brothers case thought it good to remind us of the SCA’s views on the fairness of tax law[2]:

“In any event, even if in certain instances it may seem ‘unfair’ for a taxpayer to pay a tax which is payable under a statutory obligation to do so, there is nothing unjust about it. Payment of tax is what the law prescribes, and tax laws are not always regarded as ‘fair’. The tax statute must be applied even if in certain circumstances a taxpayer may feel aggrieved at the outcome.”

It is therefore crucially important for taxpayers to take note of the proposed changes during the National Budget and to plan their tax affairs accordingly.

Author: N Theron

[1] Pienaar Brothers (Pty) Ltd v Commissioner for the South African Revenue Service and Another (87760/2014) [2017] ZAGPPHC 231 (29 May 2017)

[2] New Adventure Shelf 122 v Commissioner: SARS (310/2016) [2017] ZASCA 29 (28 March 2017)

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