If you are faced with a technical tax matter, being proactive and seeking professional advice early can prevent penalties down the line.

SARS is entitled to impose significant understatement penalties if, among other things, there are “[n]o reasonable grounds for [the] ‘tax position’ taken” by the taxpayer and “[r]easonable care [was not taken by the taxpayer] in completing [a] return”: section 223(1) of the Tax Administration Act, No 28 of 2011 (TAA).

Fortunately, SARS bears the burden of proving the facts that would bring the understatement by a taxpayer within either of these categories: s 129(3) of the TAA.

Fortunately, too, taxpayers can avoid penalties if they adopt a position or complete their tax returns based on prior advice from a tax or legal practitioner.

Most recently, in C:SARS v Woolworths Holdings Ltd (863/2023) [2025] ZASCA 99 (04 July 2025), the Supreme Court of Appeal ruled that, where the taxpayer had obtained advice from a tax practitioner and submitted a tax return in accordance with that advice, SARS could not impose a penalty.

As an aside, in that case, SARS contended that the tax practitioner had not been independent because he “peddled a model to [the taxpayer] to move it away from the applicable legal position” as he had a “direct and improper interest in the fee that he would earn for giving the opinion”. SARS provided no evidence to support that contention. It is regrettable in this case to see SARS grasping at straws by seeking to impugn the integrity of the tax practitioner who, in fact, had given the taxpayer the correct advice!

In the case of Thistle Trust v C:SARS (CCT 337/22) [2024] ZACC 1, the Constitutional Court found against the taxpayer on the merits of the case. However, the Court found that, because the taxpayer had relied on advice from a legal practitioner, even though the advice was contrary to what the Court ultimately held, the taxpayer had reasonable grounds adopting the tax position it did and did, in fact, take reasonable care in completing its tax return. In the circumstances, the Court found that SARS had not discharged its burden and could not impose penalties on the basis of those categories.

In the case of Coronation Investment Management SA (Pty) Ltd v C:SARS (CCT 47/23) [2024] ZACC 11 the Constitutional Court essentially upheld the principle that no bad faith could be attributed to the taxpayer for its reliance on legal advice.

Key take-aways

• If a taxpayer is uncertain about the way it should account for tax in a specific case, the taxpayer should obtain advice from a tax or legal practitioner.
• The advice should preferably be in the form of a comprehensive written tax opinion.
• The taxpayer should obtain the advice before it adopts a position or submits a return.
• The taxpayer would be able to remit or reduce penalties even if it turns out that the opinion was not correct.
• A taxpayer should retain a copy of the opinion because SARS may seek to impose penalties a long time after the relevant return has been submitted. In both the Woolworths case and the Thistle Trust case, the taxpayer had submitted the return 10 years before the case was heard by the SCA and the Constitutional Court, respectively. In the Coronation case, the apex court issued its judgment 13 years after the taxpayer had submitted its return!

Ben Strauss & Margot Basson

Please note that this article is published for information purposes only and does not constitute legal advice.