SARS’ IT14SD, additional assessments and understatement penalties

Most companies would by now have filed their ITR14 for the 2018 tax year and many would have been selected for verification. This means they will have to file the dreaded IT14SD. The IT14SD is not particularly difficult to complete and should not be a problem per se (given that the required recons would ideally already have been prepared in anticipation of the verification).

The headaches normally start after the IT14SD is submitted. Submission of the IT14SD is usually followed by either:

  • a completion notice; or
  • a request from SARS for an explanation of why certain expenses rank for deduction and why amounts should not be taxed. These requests typically include a threat of an understatement penalty (“USP”).

If you get a completion notice, congratulations, you are “off the hook”, for now! If you get a request for information, you may have a hard time lying ahead. Depending on the facts, responding to the requests may be simple or complex but in our experience, you can take the threat of USP seriously and hence a proper response to the questions raised is warranted (careful consideration should be given to how you respond to the USP query – SARS bears the onus of proof on USP’s and they can only impose it if there is in fact an understatement and if they comply with certain administrative provisions).

In the event that your carefully considered response to SARS’ questions falls on deaf ears or they simply disagree with your submissions the inevitable result is an additional assessment. The effect of such additional assessment is typically a reduction in refund/assessed loss or an additional tax liability coupled with a USP. Assuming you are not happy with that result, you will have to follow the objection route. The prospects of a successful objection will depend on the facts but what is sure is that getting a remission of the USP can be tremendously difficult if you don’t manage to convince SARS that the underlying adjustments made are incorrect. Stated differently, if you don’t win the objection on the underlying adjustments that caused the penalty in the first place, the penalty will likely stay. That is unless you know what to look for in the process leading up to the imposition of the USP, you understand the grounds on which SARS can reduce/remit an understatement penalty, how onus of proof works and how to use all of this in your grounds for objection or appeal.

If what you read here sounds familiar, chances are we can win your case as we have for all our tax dispute clients. In fact, at the time of publishing this article we have a 100% success rate in getting understatement penalties substantially reduced despite the underlying adjustments made by SARS being completely valid and lawful (most recently from a 100% penalty to the tune of a couple of Rmillion, to no penalty at all). Contact us for assistance if you find yourself under SARS’ scrutiny following the submission of your company’s tax return.