tax3705

lOMoAR cPSD| 48433225




Question 1: (50 marks)
Background information
Your best friend Ntato Hill called you and asked for
assistance regarding an audit SARS is conducting on her
husband, Jack’s business.
The following information may or may not be relevant.
• Jack Hill is 70 years old and runs a business (as sole
proprietor) that manufactures spare parts for industrial
machinery.
• He was in a serious motor vehicle accident in April
2022 and was discharged from the hospital only in March
2023.
• After his accident, Jack’s wife appointed an accountant
to take over Jack’s financial responsibilities and an
engineer to assist in the factory.
• The newly appointed accountant prepared the financial
statements for the 2022 financial year and submitted a
return on behalf of Jack before the deadline of 21
January 2023.
• The return submitted by the accountant states that the
business made a loss of R200 000.



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• Thereafter, the Commissioner for SARS initiated an
audit of Jack’s tax affairs.
• The audit commenced after the required notice was
given to the taxpayer.
During the audit, the following matters were raised
as a concern by the SARS auditors:
1. The accountant does not give any assistance when
information (including financial information) is
requested. The auditor is unsure if the accountant is
uncooperative or lacks the experience and skills required
to do the job.
2. Invoices do not contain adequate information to verify
sales transactions. There were no invoices for cash sales
as in the past; therefore, not all sales were recorded.
3. A second-hand manufacturing machine was ordered in
March 2021 and brought into use for the first time on 30
May 2021. The accountant claimed a 40% allowance on
the machine instead of claiming a 20% allowance. The
difference of the capital allowance claimed for tax
purposes amounts to R1 400 000.
4. Jack informs you that he was party to an international
investment scheme set up by his financial planner. The
financial planner assured him that any income on the


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, lOMoAR cPSD| 48433225




investment would be tax-free and that he would not have
to declare it. However, his friend warned him that the
transaction had all the elements of a “tax avoidance
scheme”.
He immediately withdrew his investment and the return
on the investment during the 2019 assessment year. The
SARS auditor is unaware of the scheme. Jack is afraid
to make a Voluntary Disclosure about the scheme. You
study section 223 of the TAA and measure it against his
behaviour.
Observation
Listening to the details of the audit, you decide to make
notes relating to the risks associated with the audit and
potential solutions to mitigate the risks.
Risks
 The accountant is uncooperative in providing relevant
material to the SARS auditors.
 There is an understatement of Jack’s income and
overstatement of capital allowance.
 SARS may impose understatement penalties.
 SARS may issue an estimated assessment.



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 Jack may be unable to pay his outstanding tax debt,
including any understatement penalties that SARS may
impose on him.


REQUIRED
MARKS
(a) Explain to Jack what statutory 10
powers are granted to a SARS
official under a request for relevant
material. Refer to applicable tax
legislation.
(b) Describe to Jack what the burden of 9
proof means in terms of section
102 of the TAA and who carries
the
burden, SARS or the taxpayer.
(c) Explain whether SARS may issue 6
an estimated assessment for Jack’s




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