SCA Decision: SARS Cannot Change Its GAAR Case After Issuing an Assessment
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On 5 March 2026 the Supreme Court of Appeal (SCA) delivered judgment in Commissioner for the South African Revenue Service v Erasmus. The dispute centred on a dividends tax assessment of about R183.5 million issued by SARS under the General Anti-Avoidance Rule (GAAR).
Background to the case
The taxpayer, Mr Pieter Johan Erasmus, had received dividends of more than R1.2 billion from a company called Treemo (Pty) Ltd in 2017. He declared the dividends but claimed that no dividends tax was payable because Treemo had sufficient Secondary Tax on Companies (STC) credits to offset the liability.
SARS disagreed. It believed the transactions surrounding the dividend were part of a tax avoidance arrangement and issued a notice stating its intention to apply the GAAR.
The dispute that eventually reached the SCA was not mainly about whether the tax was payable. Instead, it focused on whether SARS was allowed to change its reasoning after issuing the assessment.
What SARS originally alleged
SARS initially argued that the dividends were the result of a “dividend stripping” arrangement involving several companies and a trust. According to SARS:
A company called Newshelf repurchased shares from Treemo
The proceeds of that repurchase were then paid out as dividends
Those dividends flowed to the taxpayer and a trust
The STC credits were used to shield the dividends from tax
SARS proposed to apply the GAAR by disregarding the transactions it believed were part of the avoidance arrangement. The taxpayer disputed this and explained that the dividends were funded through a different transaction involving a trust, not through the share repurchase that SARS relied on. Despite the explanation, SARS issued the GAAR assessment.
What happened in the Tax Court
The taxpayer objected to the assessment and appealed to the Tax Court. During the appeal process, SARS filed a Rule 31 statement, setting out the legal and factual grounds for opposing the taxpayer’s appeal. However, SARS did something significant: it changed its case.
Instead of relying on the Newshelf share repurchase, SARS argued that the avoidance arrangement involved a circular flow of funds linked to a trust subscribing for shares in Treemo and a related call option agreement. In other words, SARS abandoned its original explanation and introduced a new version of the avoidance arrangement.
The taxpayer challenged this, arguing that SARS was not legally allowed to change the factual basis of the GAAR assessment after the assessment had already been issued. The Tax Court agreed and set aside SARS’s statement as an irregular step after which SARS appealed to the Supreme Court of Appeal.
What the Supreme Court of Appeal had to decide
The key legal question before the SCA was: Can SARS change the factual grounds and remedy for a GAAR assessment during litigation after the assessment has already been issued? In other words, can SARS effectively introduce a new avoidance case in court after the original assessment was made?
The SCA’s decision
The SCA dismissed SARS’s appeal and confirmed the Tax Court’s decision. The court held that SARS does not have the power to change the core basis of a GAAR assessment after it has been issued. The court relied on two main reasons.
The GAAR notice process has strict timing rules
The Income Tax Act allows SARS to modify its reasons for applying GAAR only before issuing the assessment.
Once the assessment has been issued, the earlier notice process is effectively complete. The court found that the law does not allow SARS to later change the basis of that decision.
Court procedures cannot create new powers
SARS argued that the Rule 31 statement allowed it to change its case. The SCA rejected this argument.
The court held that procedural rules cannot be used as a source of new legal powers. In this case, SARS’s new explanation effectively amounted to a new GAAR assessment, which the law does not allow through a Rule 31 statement. Because of this, the amended statement was ruled to be an irregular step, and the appeal was dismissed with costs.
Why the decision matters
This judgment clarifies an important principle in tax litigation. SARS must clearly define its GAAR case before issuing the assessment. Once the assessment is issued, SARS cannot fundamentally change:
The factual basis of the avoidance arrangement
The description of the scheme
The remedy it seeks to apply.
If SARS wants to rely on a different avoidance theory, it must follow the correct legal process rather than introducing it later in litigation.
Implications for practitioners
The decision has several practical implications.
GAAR notices are critically important
When SARS issues a section 80J notice, the facts and reasoning set out in that notice are not merely preliminary. They form the foundation of the eventual assessment. Practitioners should therefore treat these notices seriously and respond carefully.
SARS cannot “shift the goalposts” later
This judgment confirms that SARS cannot significantly alter its case after issuing the assessment and then defend the new version in court.
Taxpayers are entitled to know the case they must answer when the assessment is issued.
Early engagement with SARS matters
Since SARS must define its position before issuing the assessment, the response to the GAAR notice is an important opportunity to:
Challenge the facts
Explain the transactions
Highlight errors in SARS’s understanding
Litigation strategy becomes clearer.
Key takeaway
The SCA judgment reinforces a fundamental rule in tax administration: SARS must get its case right before issuing a GAAR assessment. Once the assessment is issued, the Commissioner cannot fundamentally rewrite the basis of that decision during litigation. This strengthens procedural fairness for taxpayers and provides greater certainty in tax disputes.
Read more in the SARS Media Release.
