Abstract

The GAAR provisions in the Income Tax Act 58 of 1962 (the ITA) empower the Commissioner of SARS to deal effectively with schemes of arrangement which have the undesirable effect of avoiding, through artificial means, an income tax liability that would otherwise accrue. Section 80B(1) of the ITA authorises the Commissioner to raise an additional or compensatory assessment which is geared to counteract the consequences of an offending scheme. Before issuing any such assessment, the Commissioner must be satisfied that facts exist which indicate the existence of a transaction, operation, scheme, agreement, or understanding whose sole or main purpose is to obtain a tax benefit and that the ‘arrangement’ was entered into or carried out in a manner which would not normally be employed for bona fi de business purposes, other than obtaining a tax benefit. In its recent decision in CSARS v Erasmus, the SCA authoritatively held that in matters where the Commissioner seeks to justify a GAAR assessment on a different factual basis from that relied on when the power in section 80B(1) was exercised, then the Commissioner is, by law, obliged to withdraw the disputed assessment and issue another in its stead based on the different facts which he aims to use for that purpose. In any such instance, the Commissioner must follow the procedure laid down in section 80J(4). This article argues that the approach adopted in CSARS v Erasmus supra upholds the sanctity of a GAAR assessment and that the Commissioner cannot willy-nilly change the basis of any such assessment, and certainly not without following due process of law. The author motivates the view that the decision of the SCA gives meaningful expression and effect to fairness and justice, both of which are basic tenets engrained in the rule of law and in the resolution of tax disputes in accordance with section 34 of the Constitution. The article concludes that the SCA was correct in holding that the Commissioner cannot be permitted to raise a GAAR assessment on one set of facts, but then be allowed to justify that assessment, in the course of appeal proceedings to the Tax Court, on a materially different set of facts.