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Changes to USPs in 2026 · Tax Break: South African tax for professionals

• 0:11
  Welcome and thank you for joining me for Tax Break.
• 0:13
  This is a podcast about South African tax, 4 South African tax
• 0:16
  professionals and practitioners. My name is Peter Finnegan and in
• 0:21
  each episode I share my thoughts with you on a topic or a recent
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  development in South African tax.
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  And I tried to keep the episode short enough that you can listen
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  to them whenever you've got a few minutes to spare in your
• 0:32
  calendar. Before I start, I would like to,
• 0:35
  as always, ask that if you like the podcast, please consider
• 0:39
  sending the link to to other persons who you think would also
• 0:42
  enjoy the podcast. It would help me a lot to grow
• 0:46
  the, the, the listener base through basically word of mouth
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  in this way. Then this is our last podcast
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  for today or for the year. I'm going to take a break from
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  broadcasting for December and will resume in the middle of
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  January. So our topic for the last
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  podcast episode is it relate comes from the, the, the there
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  were two bills that were published in by the National
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  Treasury on the 12th of November, the taxation laws
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  amendment bill and the Tax Administration laws amendment
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  bill. Now these boats are open for
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  final comments until the 27th of November.
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  Normally they and they could still in principle be changes.
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  Normally there are not that many changes from these bills to the
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  Amendment Acts, but nothing is impossible.
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  So the topic that's included in the Taxation in the Tax
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  Administration Laws Amendment bill that I'm going to be
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  speaking about today relates to understatement penalties, or
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  Usbs as they are also known. Now, I think as I also mentioned
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  last week, it makes sense if we look at these amendments to
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  first look at what does the law currently say, then look at what
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  well, let's say, and from there on you can start to apply your
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  mind as to what the effect of that could be.
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  So the current rule basically says if you have an
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  understatement, so there's a definition for what is an
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  understatement. It's a list of things that
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  causes prejudice to the fiscus. The inside must impose an
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  understatement penalty. But there is an exception to say
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  that if the understatement is as a result of a bona fide
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  inadvertent error, then such cannot impose an understatement
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  penalty. So the concept of a bona fide
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  inadvertent era was was considered in a in a few court
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  cases in the last year or two, I think most importantly the
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  coronation case and the Thistle case.
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  And those of you who listened to some of The Who listened to the
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  podcast regularly would know that in some of the earlier
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  episodes I've spoken about these cases now basically what the
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  code at the quotes are different levels set so that they didn't
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  the, the courts didn't consider the concept of a bona fide
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  inadvertent error at at in, in all the different courts where
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  the cases were out. But some of the courts
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  essentially said that if you've taken advice, even if the advice
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  is, it turns out that Sarah doesn't agree with your advice,
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  then then the the, the fact that that you've taken a position
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  that Zach doesn't agree with, it could be a bona fide inadvertent
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  error. Sasha, on the other hand, in
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  the, in the penalty guide take a much more narrow interpretation
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  of what the bona fide inadvertent area is.
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  So the whole concept of a bona fide inadvertent error and what
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  it should and shouldn't be has become quite contentious over
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  the last year or two. So there are two amendments that
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  I think are probably aimed at, at, at resolving the, the, the
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  contentiousness and any uncertainty that, that may
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  exist. So the First Amendment is to say
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  that if there is an understatement.
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  So in other words, you've got something that falls into this
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  list of, of, of things that would constitute an
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  understatement. Sash must impose an
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  understatement penalty if one of, if there's understatement
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  results from a behaviour listed in the penalty table in Section
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  2 to three, one of the Tax Administration Act.
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  So I think it makes it quite clear that there's only supposed
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  to be a penalty if you ohh, if the tax payer is guilty of one
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  of the behaviours interested in the penalty table.
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  So that's the first point, the the 1st Amendment, the Second
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  Amendment then takes the bona fide inadvertent era exception
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  out of where it currently sits. So it's not that all the
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  behaviours. So essentially if one analyses
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  the law at this point, we can probably say that irrespective
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  of the behaviour that you are guilty of, if your, your, your
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  understatement resulted from a bona fide inadvertent era, then
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  such cannot impose an understatement penalty.
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  So it's sort of an overriding consideration that that applies.
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  I do however, think if you, especially if you look at the,
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  the, the, the, the, the judgments of the courts where
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  they, where they discussed the other behaviours are, do I ever
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  think that these behaviours to, to say about the bona fide
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  inadvertent error can override any of these behaviours is
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  probably a bit too simplistic. I think all there there's an
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  interplay between these behaviours to say that if you've
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  taken advice, then it may be that you've got reasonable
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  grounds for the position that you've taken.
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  It may be that you've taken reasonable care, but it's not to
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  say that irrespective of what you've done, a bona fide
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  inadvertent error can save you because I think these these
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  concepts are are interrelated into at least related in to to
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  some extent. Be that as it may, what the rule
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  now will will now say going forward is that you need to go
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  through all the be all you need to consider the behaviours in
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  the penalty table. If you're guilty of any of them,
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  then based on the 1st Amendment such can impose an
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  understatement penalty. The last one is a behaviour
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  that's a bit different from the other ones.
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  It's a behaviour based on the quantum of the tax effect of
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  your understatement, not on something that you've
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  necessarily done wrong. So that's the substantial
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  understatement behaviour. And what the Second Amendment
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  does is to move the bona fide inadvertent error exception to
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  say that if you've gone through all the behaviours and that's
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  the only way that's the one that you fall in.
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  So in other words, you're not guilty of any of the other and
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  behaviours, but the understatement is substantial.
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  If that understatement then results from a bona fide
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  inadvertent error, such must still remit the the
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  understatement penalty. So to summarise, I think the few
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  things to take home and think about during the holiday.
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  Firstly, it's it's to take note that there's been the there are
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  changes to the understatement penalty regime.
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  But then more importantly, to think as to how the changes in
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  the structure of the rules would affect your own approach when
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  dealing with disputes about understatement penalties.
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  That that that's part of those disputes.
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  So you can't at the onset necessarily going to argue a
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  bona fide inadvertent error and therefore the penalty should be
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  remitted. It it the approach changes a
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  bit. So I think that's probably the
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  most important thing to take forward.
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  Is that you need to adjust your approach to dealing with
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  disputes on on Usbs. That's that for today's episode.
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  If you've got any questions, comments, please let me know.
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  My e-mail address is in the show notes as always.
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  And just a reminder that nothing in the podcast is intended to be
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  tax advice. Until next time, I hope that
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  you've got a blessed festive season and I'm looking forward
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  to have all of you listening to the podcast again in 2026.
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  Enjoy your your holidays, goodbye.