SARS teaches taxpayers a legal lesson

A recent court ruling showed that taxpayers remain fully responsible for their returns, as data-driven audits, poor record-keeping, and flawed legal strategy led to an attorney losing his case and facing substantial penalties.

Shepstone & Wylie Attorneys Tax Executive Johan Kotze said that there is a simple rule to remember: “If you concede the foundation, you lose the building.”

“A recent Supreme Court of Appeal judgment is a masterclass in what happens when strategy fails before substance is even tested. It is dressed as a tax case. It is actually a governance case.”

In the December 2025 case of Ntayiya v SARS, an attorney filed nil tax returns for six consecutive years. SARS audited him, but his bank statements told a different story.

“An assessment of roughly R3.6 million followed, including interest and a 150% understatement penalty for intentional tax evasion,” Kotze said.

“He objected. He appealed. He litigated. He engaged in alternative dispute resolution. He returned to court. And he lost, not because tax law is unforgiving, not because process is.”

The taxpayer relied on a familiar explanation, arguing that the nil returns were submitted based on incorrect calculations prepared by his accountants. He argued that it was a bona fide error, but the court was not persuaded.

Submitting a nil return when income exists constitutes an “understatement” under the Tax Administration Act. A 150% penalty applies to intentional tax evasion unless the taxpayer proves a bona fide inadvertent error.

“Blaming accountants without corroboration was not enough. For business owners, the principle is straightforward: If your name is on the return, responsibility is yours.”

“Outsourcing accounting does not outsource accountability. Directors remain responsible for what is filed in their name.”

The taxpayer argued that he ran a small law practice and could not have generated the income SARS claimed, Kotze explained.

“SARS did not argue the theory. It analysed bank statements. The audit revealed deposits inconsistent with nil returns.”

“It also revealed the purchase of multiple vehicles during the same period in which no income was declared. In today’s environment, SARS audits from data, not from stories.”

Kotze warned that business owners who think modest operations escape scrutiny underestimate the digital footprint of modern commerce.

“Bank statements, asset purchases and lifestyle indicators tell a coherent story. And that story will be tested against tax filings. When the data contradicts the return, the data wins.”

The fatal strategic error

Kotze explained that the important lesson in this case is not procedural. In the High Court, the taxpayer amended his notice of motion.

“Originally, he sought to review and set aside the tax assessments and have corrected financial statements accepted. But at the hearing, he abandoned those claims and pursued only a repayment claim. This was fatal.”

“The court held that once the validity of the assessments was no longer under attack, the assessments stood as final and binding.”

Because the 150% penalty flowed from those assessments, Kotze said it could not be attacked in isolation.

“In simple terms, he tried to argue about the consequences without challenging the foundation. That is not just a litigation lesson. It is a governance lesson.”

In business disputes, regulatory matters, and even internal conflicts, Kotze stressed that the foundational decision must be identified.

“If you concede the base structure, everything built on it stands. You cannot abandon the foundation and then complain about the roof.”

The taxpayer also engaged in alternative dispute resolution with SARS and submitted revised financial statements.

“There were discussions. There were exchanges. But there was no formal withdrawal of the original assessments. No settlement agreement approved. No binding compromise.”

Kotze said the court made it clear that unless an assessment is formally set aside or withdrawn, it remains valid and enforceable.

“Many business people assume that ongoing engagement or negotiation suspends risk. It does not. Dialogue is not a concession until something is formally varied; it stands.”

One mistake could cause everything to collapse

Kotze noted that another interesting feature in this case was the attachment of funds from the law firm’s bank account to secure the personal tax debt.

On appeal, the taxpayer sought to introduce new evidence relating to that attachment. However, this was dismissed by the court.

“A company is a separate legal persona. If the company wishes to challenge an attachment, it must do so in its own name. It was not a party to these proceedings.”

“This is a reminder many owner-managed businesses forget: the company is not you. And you are not the company. That separation can protect you. But it can also constrain you.”

Kotze added that the dispute also involved the private use of motor vehicles. The taxpayer claimed 100% business use.

However, when SARS requested supporting documentation – logbooks and mileage records – the taxpayer did not produce anything.

“Ultimately, SARS accepted a 90/10 split proposed by the taxpayer’s own accountants. No records mean no deduction.”

“This is not merely a tax principle. It is a management principle. If a claim matters, document it. If it cannot be evidenced, it does not exist.”

Kotze stressed that this case is not about aggressive tax planning, complex structuring or obscure statutory interpretation. Rather, it is not discipline:

• File accurate returns.
• Supervise professional advisers.
• Keep records.
• Understand corporate separateness.
• Attack foundational decisions if intending to challenge consequences.
• Do not assume engagement equals resolution.
• Most importantly: think strategically.

“Litigation, like business, requires clarity about what you are trying to undo. Concede the wrong issue, and the rest collapses,” Kotze said.

“The appeal was dismissed. Costs were awarded, including the costs of two counsel. Expensive, and entirely avoidable.”