Can a taxpayer still claim a deduction more than a decade after it should have been claimed?
That question sits at the heart of a recent Tax Court judgment involving a R38.8-million deduction claimed by a fuel exporter.
Although the taxpayer lost its case, Unicus Tax Specialists SA founder Nico Theron believes the ruling may have sparked an equally important debate about whether the correct tax years can still be revisited.
The case, Taxpayer EPP v CSARS, turned on what looked like a straightforward timing dispute. The taxpayer lost. The deduction was disallowed. The appeal was dismissed.
On one level, the judgment is a reminder that timing matters. Tax practitioners often assume that if a deduction is disallowed in one year, it can be claimed in another. But Theron argues that the risk is often underestimated. If the correct year cannot be re-opened, what begins as a timing dispute can become a permanent tax cost.
On another level, Theron argues the judgment raises a question that should interest accountants, tax practitioners, and advisers alike: if a court finds that a deduction was claimed in the wrong year, can the taxpayer still go back and correct the right year?
“That question is not a footnote to the judgment. It is the whole procedural fight that now follows,” he wrote.
How the dispute arose
The taxpayer operated as a fuel distributor and exporter.
As part of its business, it paid excise duties and levies when purchasing fuel from South African suppliers. Because the fuel was exported, the taxpayer was entitled to claim refunds of those duties under the Customs and Excise Act, provided the claims were submitted within the prescribed period.
The problem arose when certain refund claims were not submitted in time by the taxpayer’s clearing agent. As a result, the claims prescribed and could no longer be recovered.
The taxpayer then claimed the unrecovered amount – R38.8m – as a deduction in its 2015 tax return, arguing it had suffered a loss when the refund rights expired.
The South African Revenue Service disagreed.
The revenue authority argued the expenditure was incurred years earlier, when the fuel was purchased and the duties were paid. The later loss of the refund claims did not transform the original expenditure into a deductible loss in 2015.
What the Court decided
The Tax Court agreed with SARS.
Judge Nelisa Mali found that the liability to pay the duties arose when the fuel was purchased during the 2011 to 2013 years of assessment. That was when the expenditure was incurred for tax purposes.
The taxpayer argued it suffered the relevant loss only when its refund claims prescribed in 2015. The Court disagreed, finding it was conflating two separate events.
The first was the payment of the excise duties when the fuel was purchased. The second was the later loss of the right to claim refunds when those claims prescribed.
Judge Mali noted that the refund claims were a separate statutory entitlement. Losing the right to claim a refund may have resulted in the loss of that entitlement, but it did not change when the original expenditure was incurred.
According to the Court, the expenditure occurred when the duties were paid, not when the refund claims were lost.
The judgment also reaffirms a basic principle of South African tax law: income tax is assessed on a year-by-year basis. Expenditure must generally be claimed in the year in which it is incurred.
Allowing the deduction in 2015 would effectively have permitted the taxpayer to shift expenditure from the 2011 to 2013 years into a later year of assessment, undermining that annual assessment principle.
In simple terms, the Court was not saying the expenditure never existed. It was saying the taxpayer was trying to claim it in the wrong year.
As a result, the Court dismissed the appeal, upheld SARS’s additional assessment, confirmed a 10% understatement penalty, and found that the interest charged by SARS should remain payable.
Can the taxpayer still go back?
Theron sees a particular irony in the outcome.
“There is an irony here,” he wrote. “The taxpayer lost because the Court accepted SARS’s timing argument. But that same timing argument may now become the taxpayer’s strongest weapon.”
Which raises the obvious question: if the expenditure belongs in those earlier years, can the taxpayer still get back to them?
Ordinarily, a taxpayer cannot decide in 2026 to amend a 2013 tax return. Tax assessments are subject to prescription periods and eventually become final.
Theron believes the taxpayer’s next move could be to seek reduced assessments for the 2011 to 2013 years under section 93 of the Tax Administration Act. The obstacle, however, is that those years are likely prescribed.
He points to two possible routes around that problem. The first relies on section 99(2)(d)(i), which allows assessments to be adjusted in certain circumstances to give effect to the resolution of a tax matter. The second relies on section 99(2)(d)(iii), read with section 93(1)(d), which deals with reduced assessments where SARS became aware of an error before prescription took effect.
Whether either route is available in these circumstances remains uncertain.
Theron acknowledges that any attempt to revisit the earlier years would face significant procedural hurdles. In his view, the debate is likely to centre on whether the Tax Court’s finding that the expenditure was incurred between 2011 and 2013 is sufficient to justify re-opening those years under the Tax Administration Act.
For now, the judgment settles one issue: the deduction does not belong in 2015.
Whether the taxpayer can still reopen the years in which the expenditure was actually incurred is a question the Tax Court never had to answer. If Theron is right, that may be where the next battle begins.
