SARSTC IT 25390

Facts

On 11 September 2018, XY Mining applied for approval for exemption from income tax, with retrospective effect from 1 February 2016.

On 25 September 2018, SARS responded via e-mail and informed XY Mining that its 2016 financial statements does not reflect public benefit activities having been being carried on by it. XY Mining was also requested to indicate whether it had distributed any funds to other approved public benefit organisations (“PBO”) as well as whether it carried on public benefit activities.

SARS provided XY Mining with the following reasons, for not granting the tax exemption approval from 1 February 2016:

• XY Mining did not conduct any public benefit activities since its establishment, and accordingly did not qualify for tax exemption status prior to 26 June 2018.
• The trust deed, in terms of which XY Mining was established, did not comply with all the requirements set out in section 30 of the Income Tax Act, 58 of 1962 (“ITA”).
• XY Mining was not tax compliant, as the compliance history showed the 2017 to 2019 income tax returns were outstanding as at 1 March 2020.

Issues

The case addresses the proper interpretation of section 30(3B) of the ITA, read with the definition of “public benefit organisation” contained in section 30(1) of ITA.  These provision are specifically considered given that fact that XY Mining’s application for retrospective approval precedes the amendment of section 30(3B).

Finding

SARS’ heads of argument focused on the issues of whether the XY Mining trust deed complied with the requirements of the ITA and whether XY Mining was tax compliant. 

The judge highlighted that the purpose of section 30(3B) is to empower the Commissioner to grant the qualifying public benefit organisation (“PBO”) retrospective status as an approved PBO. The statute makes it clear that the Commissioner needs to be satisfied that the applicant meets the requirements of section 30(1), nothing less and nothing more.

The judge states that the aim of section 30(3B) can be found in the Proposal for Explanatory Memorandum to the Tax Laws Amendment Act No.17 of 2009, which proposed the following:

“If a PBO or recreational club applies to tax exempt status, it is proposed that the Commissioner be given discretionary powers to retroactively approve tax exemption status, in order to obtain this relief, the Commissioner must be satisfied that the relevant PBO or club was substantially within its given status in terms of existing law.”

The proposal however left out the important issue of tax compliance and did not address the enquiry in respect of the provisions of the trust deed.  What is of significance is that the proposal sets out what the Commissioner needs to be concerned about, which is whether the PBO was substantially within its given status in terms of the existing law.

The judge highlights that the Commissioner is not allowed to apply the amendment of section 30(3B) of the ITA, retrospectively. The effect of the amendment is that the PBO has to meet the tax compliance requirements and only came into being on 15 January 2020, long after XY Mining applied for PBO approval.

The judge concludes that the application by XY Mining preceded the amendment of section 30(3B). Therefore, at the time of application, its compliance history was not sanctioned by the provisions of 30(3B).  The judge adds that “the Law of General Presumption is that legislation cannot apply retrospectively”.

In respect of the current application by XY Mining, regarding the question of law concerning the interpretation of section 30(3B), the judge found that the provisions of section 30(3B) of the ITA are capable of being interpreted without any assistance and therefore ruled that the point of law must succeed. The judge made no order as to costs.

Find a copy of the court case here.

28/10/2021