Sars imposes R30 million tax bill on businessman

A RECENT Tax Court ruling in favour of the South African Revenue Service (Sars), which treated large loan account balances as undeclared income, serves as a warning to directors and shareholders to properly manage these accounts, maintain accurate records, and be prepared to explain the origin of funds when Sars flags loans as unexplained.

- MEGAN LANGTON

The case of Taxpayer D v CSARS (IT 35476, 25 February 2025) dealt with the question of whether the taxpayer had satisfactorily explained a large sum reflected as a loan account owing to him in one of his wholly owned companies. The dispute was factual in nature, relating to the source of the funds for the 2014 to 2017 tax years.

The case revealed a staggering tax exposure. Sars assessed the taxpayer on undeclared income of R37.1 million, as well as R20 million in undeclared interest income linked to shareholder loan accounts. This resulted in a total assessed amount of R57.1 million. Besides the tax obligation, the Court ruled that Taxpayer D also had to pay interest accrued, an understated penalty, and legal costs, including the cost of two counsel and an expert witness.