Debt is one of the most unfortunate aspects of life that everyone ultimately deals with. Where normal consumer debt generally prescribes after three years, tax is somewhat different. For one, should you be sequestrated, the South African Revenue Service (“SARS”) is a preferential creditor and will be paid before many other debts are settled. But what is the legal timeline SARS has to pursue you for the recovery of outstanding tax debt?
Tax debt does not simply disappear because time has passed. However, SARS is not given an unlimited period to start recovery proceedings. In broad terms, SARS may not initiate proceedings to recover a tax debt after 15 years have passed from the date on which the relevant assessment, or a decision giving rise to the tax liability, becomes final.
The rules dealing with prescription are found partly in the Prescription Act, 68 of 1969 (“Prescription Act”), but tax debt has its own specific rules under the Tax Administration Act, 28 of 2011 (“TAA”). Section 171 of the TAA is the important provision for recovery of tax debt, and it provides the 15-year limitation period for SARS to initiate collection proceedings.
What Constitutes Tax Debt?
Tax debt consists of any amount of tax that is due or payable to SARS, including related penalties and interest. This may originate from an assessment issued by SARS, or from a self-assessment, such as Value-Added Tax, where the taxpayer submits the relevant return and calculates the liability.
Tax debt also does not fall away merely because a taxpayer leaves South Africa. If an amount remains due to SARS, it can continue to attract interest and penalties until the amount is paid, written off, compromised, or SARS is no longer able to pursue recovery because the legal time period has expired.
When Does The Clock Start Running?
The due date shown on an assessment is important because it tells you when the tax must be paid. However, for the 15-year SARS recovery rule, the more important date is the date on which the assessment becomes final. This is not always the same as the payment due date.
An assessment can become final once the period for objection or appeal has passed, or once any objection, appeal, or other dispute process has been finalised. If a decision made under section 104(2) of the TAA gives rise to the tax liability, the 15-year period will generally be measured from the date on which that decision becomes final.
This means that each case must be checked carefully. The date on the statement of account, the assessment date, the payment due date, and the date on which the assessment became final may not all be the same date.
Is There A Time Limit On The Issue Of Assessments?
There are also separate rules that limit how far back SARS can go when issuing an assessment. These rules are different from the 15-year collection rule. In simple terms, the assessment rules deal with when SARS may raise an assessment, while the collection rules deal with how long SARS has to initiate recovery of an existing tax debt.
According to section 99 of the TAA, SARS is generally restricted from raising an assessment more than three years after the date of an original assessment issued by SARS. In the case of a self-assessment where a return is required, such as VAT, the general period is five years from the date of the original self-assessment.
These time limits are not absolute. SARS may still raise an assessment outside these periods in certain circumstances, including where the full amount of tax was not assessed because of fraud, misrepresentation, or non-disclosure of material facts. In the case of self-assessments, intentional or negligent misrepresentation or non-disclosure may also be relevant.
When Does An Assessment Become Final?
An assessment is generally considered final once the taxpayer can no longer object to it, or once any objection, appeal, or related dispute process has been concluded. A taxpayer who disagrees with an assessment must follow the dispute process within the time periods allowed by law.
In most cases, an objection must be submitted within 80 business days from the date of the assessment or SARS decision. If reasons have been requested from SARS, the time period may run from the date on which adequate reasons are provided, or from the date SARS advises that adequate reasons have already been given.
Once these time periods have lapsed, or once the dispute process has been finalised, the assessment may become final. That finality is important because it is usually the point from which the 15-year recovery limitation period must be considered.
Exceptions To Prescription
After the 15-year time limit, SARS should no longer be able to initiate proceedings to recover historic tax debt. The rule is not, however, a simple automatic write-off that applies in every situation without further investigation.
The running of prescription can be affected by steps taken before the period expires. For example, if SARS has already initiated recovery proceedings, or if there has been an acknowledgment of the debt or payment towards the debt, the position must be considered carefully. Historic SARS correspondence, judgments, third-party appointments, payment arrangements, and dispute history can all be relevant.
It is also important not to confuse this recovery prescription rule with SARS’s ability to raise assessments outside the ordinary three-year or five-year periods where fraud, misrepresentation, or non-disclosure is present. These are separate legal questions.
How To Check If Your Debt Has Prescribed
You can check whether tax debt is still reflected on your SARS profile by logging into eFiling or the SARS MobiApp and requesting a statement of account. You can also contact SARS directly through the SARS Contact Centre. SARS also provides service channels such as SMS, USSD, and WhatsApp for certain balance and statement requests.
For an outstanding amount to potentially qualify as prescribed tax debt, the relevant assessment or decision must generally have become final more than 15 years ago. You must also consider whether SARS took any legal or recovery steps during that period, whether any payments were made, whether the debt was acknowledged, and whether any dispute or appeal process affected the date on which the liability became final.
It is therefore not enough to look only at whether the amount is old. The full timeline must be reconstructed before concluding that SARS can no longer recover the debt.
What To Do When Debt Has Prescribed
If you are convinced that your tax debt has prescribed, you can contact SARS and request that the amount be investigated. SARS may review the assessment history, statement of account, payment history, dispute history, and recovery steps taken on the account.
Where the amount is indeed no longer recoverable, a request can be made for SARS to remove or write off the prescribed debt from the taxpayer’s account. This should be done carefully, because any communication that amounts to an acknowledgment of liability, or any payment arrangement entered into without proper advice, may affect the taxpayer’s position.
Conclusion
It is good to know that both consumer and tax debt are subject to legal time limits. However, tax debt is more technical than ordinary consumer debt, and the 15-year SARS recovery rule should not be applied without checking the assessment history and the finality date of the tax liability.
After 15 years from the date on which the relevant assessment or decision became final, and provided SARS has not already taken the necessary recovery steps, a taxpayer may have grounds to request that SARS write off or remove the old debt. If you are unsure, it is advisable to seek professional guidance from your tax practitioner before engaging with SARS, making a payment, or inadvertently admitting liability for prescribed debt.
