A recurring difficulty in tax disputes is how far a taxpayer may develop its case after lodging an objection. SARS understandably wants taxpayers to put their cards on the table early. Taxpayers, on the other hand, sometimes only appreciate the full factual or legal significance of their position once the dispute has matured and specialist advice has been obtained.

A recent Tax Court judgment provides some useful guidance on where that line may lie.

In Taxpayer KG (Pty) Ltd v Commissioner for SARS, the taxpayer had claimed input tax of R6.65 million on the acquisition of a property. During the audit and objection stages, its case was essentially that the property had been acquired for development and eventual disposal. Much later, shortly before the Tax Court hearing, it sought to amend its Rule 32 statement to introduce two additional intended commercial uses: exploitation of substantial fly-ash deposits on the property and development of a solar electricity project.

SARS opposed the amendment. Its concern is easy to understand, because the taxpayer knew about them from the outset but had not relied on them during the audit, objection or appeal process.

The Tax Court nonetheless allowed the amendment.

The important distinction

Rule 32(3) permits a taxpayer to introduce a new ground of appeal unless it constitutes a ground of objection against a part or amount of the assessment that was not objected to originally.

The judgment therefore focuses attention on an important distinction: a new ground is not necessarily a new dispute.

The taxpayer had always challenged the same thing — SARS’ disallowance of the R6.65 million input tax deduction. Its proposed new factual allegations did not attack another component of the assessment or introduce a new amount into dispute. They provided additional reasons why the same input tax deduction should be allowed.

That distinction allowed the court to reconcile the case with the SCA's judgment in Baseline Civil Contractors. In Baseline, the taxpayer attempted to attack a component of the assessment which its objection had not previously placed in dispute.

A useful dose of commercial reality

Perhaps the most interesting aspect of the judgment is the court's treatment of prejudice.

SARS argued that it would now have to investigate a factual case that should have been disclosed years earlier. The court accepted the practical inconvenience, but regarded it as curable. The trial had been postponed; SARS could investigate the new allegations, and it could file a supplementary Rule 33 statement.

There is also an important underlying principle. The court referred to SARS’ obligation not to collect tax which is not legally payable. Refusing an amendment merely because a taxpayer did not formulate its case perfectly at an earlier stage may, in an appropriate case, produce precisely that result.

What does this mean for taxpayers?

The judgment should not be read as permission to lodge skeletal objections and fix them later. The court itself described the taxpayer's explanation for its earlier omission as “admittedly weak”.

The commercial lesson is rather different.

Tax disputes evolve. Documents are revisited, advisers change, and facts which initially appeared peripheral may assume considerable importance once the real legal issue becomes clear. A taxpayer is not necessarily locked forever into every aspect of the factual and legal formulation adopted when its objection was prepared.

The critical question is what was actually placed in dispute.

Where the taxpayer later seeks to challenge a completely different part or amount of an assessment, Baseline remains a formidable obstacle. But where the taxpayer continues attacking the same amount and merely develops additional factual or legal grounds for doing so, Taxpayer KG suggests that there may be considerably more room to manoeuvre.

That is an important distinction — particularly in substantial tax disputes where the merits should ultimately matter more than whether the taxpayer articulated its case perfectly at the first attempt.