So, you’ve made a mistake with your taxes and the revenue authority imposed a hefty understatement penalty.
This misstatement could be as a result of a default in submitting a return or an omission from your return that was submitted or an incorrect statement in a return or you’ve failed to pay the correct amount of tax.
If the understatement or misstatement is honestly due to innocence and you’ve acted in good faith, for example you submitted a tax return based on advice you got from an advisor, your accountant or tax practitioner with no intention to deceive SARS, then there is a remedy provided by law.
Section 222(1) of the Tax Administration Act provides that where there has been an understatement which is a result of a bona fide inadvertent error, then you may be excused from paying the penalty.
In a Tax Court case in 2016, without going into the detailed facts of the situation, the Court clarified section 222(1) and ruled that where a taxpayer acted in good faith based on advice and the taxpayer being “lay on the issues of tax and the law” with no intention to deceive, SARS must remit the penalty imposed for an understatement. In this matter the taxpayer claimed an amount as a deductible allowance having acted on tax advice and had every reason to believe that the claim was correct.
Having acted bona fide, in Latin means you’ve acted with good faith and inadvertently which means not resulting from deliberate planning. The Court found that in such case the error may be acknowledged as a state of being wrong in the taxpayer’s judgement and SARS should remit the penalty.
In order to rely on the remedy provided for in the Act, the taxpayer must have,
- Made full disclosure of all the facts in the tax return to SARS, which resulted in the understatement,
- Obtained a tax opinion upon which it acted when submitting the tax return, and
- Made an innocent statement on the tax return acting on the strength of tax advice, in good faith and without the intention to deceive.