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TAXATION: High Court In Favour Of RCI

 



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The Western Cape High Court recently gave judgement in respect of an appeal from the Cape Town Tax Court.  Trading as RCI, carried on a timeshare exchange business.  Its members were able to “bank” timeshare rights in exchange for points that they could then use to obtain timeshare rights at other resorts.  RCI granted a number of these points to its employees, which allowed them to utilise the resorts.

The South African Revenue Service (SARS) raised an estimated employees’ tax assessment against RCI, on the basis that the provision of points constituted a taxable benefit for the employees.  SARS determined a market value for the points. 

In the Tax Court, RCI firstly contended, that although the points constituted a deemed taxable benefit, they had no cash equivalent value and therefore were not subject to employees’ tax.  RCI then also contended that SARS had utilised the wrong remedy in assessing it, rather then its employees directly.  The Tax Court found in favour of SARS and dismissed RCI’s appeal.  RCI then appealed to the Western Cape High Court.

The Western Cape High Court first considered the second of RCI’s contentions, which had been added at the hearing before the Tax Court.  This is because, if it were successful, it would determine the case in favour of RCI, without any need to consider the other contention.

The employees’ tax legislation contains a remedy for SARS to re-determine the tax due, on the assessment of employees, if it believes that their employer did not correctly determine the cash equivalent of a taxable benefit.  RCI contended that this was the only approach available to SARS in the present case.  SARS argued that it was one of the approaches available to it, along with the option of assessing RCI (as employer) directly.

The Western Cape High Court agreed with RCI.  It found that the specific remedy of redetermination on assessment of the employees, was an exclusive one.  SARS’ approach of assessing RCI was then, in the circumstances, not permitted in terms of the legislation.  The estimated employees’ tax assessment against RCI was therefore set aside.  

SARS had raised various policy considerations in support of allowing it to choose between alternative approaches.  The Western Cape High Court stated that, if that were required, the legislation should be amended accordingly.


 
 
 
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