The general Anti-Avoidance rules

A2The Income Tax Act, 58 of 1962 (‘Income Tax Act’) contains various specific anti-avoidance rules aimed at preventing the abuse of certain specific sections in the Income Tax Act. However, over and above these specific anti-abuse provisions, the general anti-avoidance rules (‘the GAAR’) would also find application to cover further potential and unforeseen loopholes, or abuse of beneficial tax regimes, which exist nonetheless and are exploited by taxpayers.

The GAAR is contained in sections 80A to 80L of the Income Tax Act. Its provisions supersede any other contained in the Income Tax Act. Broadly speaking, the GAAR consists of 4 elements, all of which must be present in order for SARS to be able to successfully invoke the GAAR against a taxpayer:

  1. an arrangement (which includes any transaction, scheme, agreement or understanding) must have been entered into,
  2. with the sole or main purpose to obtain,
  3. a tax benefit (defined as including any avoidance, postponement or reduction of any liability for tax), and
  4. this arrangement must exhibit signs of ‘abnormality’.

‘Abnormality’ is to be determined, in terms of section 80B, depending on the context within which the arrangement or transaction in question has been entered into. For example, a transaction entered into in a business context would be regarded as being abnormal if it lacks commercial substance (dealt with in detail in section 80C), whilst in a context outside of business, a transaction would be considered ‘abnormal’ if it is entered into based on terms not normally employed for bona fide purposes.

It is significant that the onus to prove that the GAAR should not apply generally rests on the taxpayer. In this regard, section 80G makes it quite clear that a taxpayer is presumed to have entered into a transaction with the sole or main purpose to obtain a tax benefit, until the taxpayer is able to prove otherwise.

The GAAR can be applied to a single transaction, a multi-stepped scheme viewed holistically, or it can even subject a single step (which may have been inserted for only tax purposes only) to scrutiny.

Once it has been determined that SARS may invoke the GAAR in relation to any such ‘impermissible avoidance arrangements’, SARS is afforded wide-ranging powers including:

l disregarding, combining, or recharacterising any steps in or parts of the impermissible avoidance arrangement;

l deeming persons who are connected persons in relation to each other to be one and the same person for purposes of determining the tax treatment of any amount;

l reallocating any gross income, receipt or accrual of a capital nature, expenditure or rebate amongst the parties;

l recharacterising any gross income, receipt or accrual of a capital nature or expenditure; or

l treating the impermissible avoidance arrangement as if it had not been entered into or carried out, or in such other manner as in the circumstances of the case SARS deems appropriate for the prevention or diminution of the relevant tax benefit.

It may seem at first as though the GAAR requirements are extremely onerous and weighted in SARS’ favour. If one remembers though that all 4 the elements discussed above must be present before SARS can invoke the GAAR, some balance is restored. When subject to a GAAR dispute with SARS therefore, it is advisable to focus on those elements which the taxpayer is able to defend. Proving the absence of merely one of the 4 prerequisite elements destroys SARS’ attack.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE).





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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.


Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.


Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.


Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.