Shifting Grounds: SCA Tightens the Reins on taxpayers New Arguments in Tax Appeals

The Supreme Court of Appeal (“SCA”) delivered a unanimous judgment in Baseline Civil Contractors (Pty) Ltd v The Commissioner for the South African Revenue Service on 24 February 2026, providing definitive guidance on the limits of a taxpayer’s ability to amend their case during an appeal. The ruling clarifies the scope of Rule 32(3) of the Tax Court Rules, confirming that while taxpayers have some flexibility, they cannot use an appeal to introduce fundamentally new cases that target parts of an assessment never previously challenged.

The Origins of the Dispute

Baseline Civil Contractors (“Baseline”), a firm in the civil construction industry, claimed to be part of an en commandite partnership with Baseline Group LLP (“BG LLP”). For the 2018 tax year, Baseline reported a gross income of R320,846,361 and sought deductions totalling R73,215,161 under Sections 11(a) and 23(g) of the Income Tax Act.

Central to the dispute was an R11,072,237 deduction described as a profit distribution paid to BG LLP. Following an audit, the South African Revenue Service (“SARS”) disallowed this deduction, asserting the expense was a voluntary distribution of profit made after income was earned, rather than an expense incurred in the production of income.

A Change in Strategy

Baseline initially objected under Rule 7, arguing that the payment met the legal requirements for a deductible expense, referred to as the “deduction ground”. However, when Baseline reached the Tax Court stage and filed its Rule 32 statement, it introduced a starkly different alternative: the “receipt/accrual ground”.

Under this new ground, Baseline argued that the R11,072,237 had never actually "accrued" to it for its own benefit and should therefore be excluded from its gross income entirely, rather than being treated as a deduction from that income. SARS objected, arguing that this new ground was a prohibited attempt to challenge a part of the assessment, the gross income figure, that Baseline had previously accepted.

The SCA’s Interpretation of Rule 32(3)

Rule 32(3) allows a taxpayer to include a new ground of appeal “unless it constitutes a ground of objection against a part or amount of the disputed assessment not objected to under rule 7.”

Deputy President Zondi, writing for the Court, held that this rule contains a permissive opening qualified by a strict "prohibitory proviso". The Court found that Baseline’s two arguments were fundamentally incompatible. The "deduction ground" accepted the gross income figure and sought to reduce taxable income, whereas the "receipt/accrual ground" attacked the gross income figure itself, a portion of the assessment Baseline had never disputed in its original Rule 7 objection.

The SCA emphasised that Rule 32(3) exists to:

• Prevent surprise and "trial by ambush".
• Promote finality and efficiency in Tax Court proceedings.
• Preserve the integrity of the structured dispute process.

Significantly, the SCA expressly disagreed with the broader interpretation of Rule 32(3) found in ITC 1912, which suggested the rules were intended to progressively expand the ambit of the issues on appeal. The Court noted that if the legislature had intended for such total flexibility, the restrictive proviso in Rule 32(3) would have been unnecessary.

Practical Implications for Taxpayers

This judgment reinforces that the Rule 7 objection is the foundational document in any tax dispute. It sets the boundaries for all subsequent litigation. While a taxpayer may offer new legal arguments to support the same relief, they cannot pivot to target a different component of the assessment.

For tax practitioners, the message is clear, all viable grounds, including alternative legal theories, must be fully articulated at the initial objection stage. If a taxpayer later discovers an error in their own return affecting a previously unchallenged figure (like gross income), the appropriate remedy is a request for a reduction under Section 93 of the Tax Administration Act, for example, rather than trying to reconfigure a Rule 32 statement mid-appeal.

Ultimately, the SCA has decisively closed the door on strategies that attempt to amend a taxpayer’s case midstream, in a way that contradicts the original objection.

We can only hope that these principles will apply to SARS in its grounds of assessment too, and that the taxpayer is protected from "trial by ambush" and "surprise" arguments that contradict SARS’ own prior declarations.

This is also a reminder that disputes stand or die by the initial stages of the dispute (the objection). Taxpayers are urged to obtain professional advice and ensure they are assisted in any dispute against SARS.