The Misuse and Abuse of Section 80J of the Income Tax Act

• Jurisdiction: South Africa
• Date: 01 March 2023
• Published date: 01 March 2023
• DOI: 10.10520/ejc-btclq_v14_n1_a2
• Pages: 1-12
• Author: Ed Liptak

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© Juta and Company (Pty) Ltd

The Misuse and Abuse of

Section 80J of the Income Tax Act:

TIME TO GET BACK TO THE BASICS

ED LIPTAK*

ABSTRACT

Section 80J of the Income Tax Act was introduced in 2006 as part of the

then new General Anti-Avoidance Rule (GAAR). This section requires the

Commissioner to notify a taxpayer at the point in an audit when he/she

f‌i rst comes to believe that the GAAR may be applicable to an arrangement

entered into or carried out by the taxpayer. It was enacted in response to

concerns that the new GAAR might be automatically relied upon by SARS

as a ‘catch-all’ section of last resort without due and proper consideration.

Commentators also expressed concerns about conduct of audits under

former s103, particularly with respect to delays they encountered and the

time and expensed they incurred.

Section 80J attempted to address these concerns by providing a logical

framework for the timeous conduct of audits under the new GAAR.

Subsection (1) requires the Commissioner to notify the taxpayer if he/she

believes the GAAR may be applicable to an arrangement and state his/her

reasons therefor; sub-s (2) gives the taxpayer an opportunity to respond to

that notice; sub-s (3) requires the Commissioner to take further action within

a specif‌i c statutory time frame; and sub-s (4) permits the Commissioner to

revise or modify his reasons for applying the GAAR in light of any additional

information that may come to his knowledge.

Two recent judgments have raised concerns about the current approach

being taken to s 80J by taxpayers and, to a certain extent, SARS itself. In

particular, taxpayers appear to be taking the position that section 80J(1),

read together with the statutory def‌i nition of ‘arrangement’, have imposed a

burden upon the Commissioner to identify and describe a transaction, opera-

tion or scheme with an exacting degree of precision never before required

under the former s103 or its predecessors. This approach cannot be support

by a textual, contextual and purposive interpretation of the provisions

involved, and, in fact, would severely frustrate both the overriding purpose of

the current GAAR and the specif‌i c purposes of s80J itself.

Introduction

Two recent judgments, one by the High Court and one by the Tax Court,

have raised two important questions regarding notice requirements intro-

duced by s 80J (‘section 80J notice’) of the Income Tax Act (‘the Act’).

The f‌i rst concerns the basic nature and purpose of those requirements.

The second concerns the meaning of the term ‘arrangement’, as used in

* Independent Tax Person Extraordinaire.