SCA Draws the Line: You Can’t Rewrite Your Tax Case Midway
This article will count 0.25 units (15 minutes) of unverifiable CPD. Remember to log these units under your membership profile.
The Supreme Court of Appeal has delivered an important ruling in Baseline Civil Contractors (Pty) Ltd v CSARS, sending a strong message to taxpayers and practitioners: you cannot change your tax case halfway through the process.
The Background of the Case
Baseline Civil Contractors, a construction company, submitted its 2018 tax return declaring gross income of approximately R320 million. It claimed deductions of about R73 million, including R11 million paid to a partnership (BECP) under what it said was a profit-sharing arrangement.
SARS disallowed the R11 million deduction claiming that this was not an expense incurred in producing income. It was a distribution of profits after income had already been earned. Therefore, it did not qualify as a deduction under section 11(a) of the Income Tax Act.
Baseline objected, arguing that the payment was a legitimate business expense and should be deductible.
The Turning Point
After its objection was disallowed and the matter went on appeal, Baseline introduced a new argument. The original argument was that the R11 million is income, but it is deductible.
Later, in its formal appeal statement, it Baseline claimed that the R11 million was never our income at all. It accrued to the partnership. In other words, Baseline shifted from arguing about deductibility to arguing about whether the amount formed part of its gross income in the first place.
SARS objected, saying this was not allowed under Rule 32(3) of the Tax Court Rules.
The Legal Issue
Rule 32(3) allows a taxpayer to introduce a new ground of appeal, but not if it amounts to a new objection against a part or amount of the assessment that was never objected to originally. The key question is whether this was merely a new legal argument about the same issue, or was it a completely new case attacking a different part of the assessment?
The Judgment
The SCA dismissed Baseline’s appeal. The Court held that Baseline’s new “receipt/accrual” argument was fundamentally different from its original deduction argument. At objection stage, Baseline accepted the amount formed part of its gross income and only challenged the disallowance of the deduction.
By later arguing that the amount never accrued to it, Baseline was effectively challenging the inclusion of that amount in gross income, something it had never objected to. The Court made it clear:
You cannot say an amount is your income and deductible, and at the same time say it was never your income at all.
This was not just a new angle. It was a new case. And that is not permitted under Rule 32(3).
The appeal was dismissed with costs, including the costs of two counsel.
The Final Outcome
SARS’s additional assessment stands. The R11 million deduction remains disallowed and Baseline remains liable for the tax and must also pay the legal costs.
This case reinforces three critical lessons for accountants:
The objection stage is everything. Your Rule 7 objection defines the battlefield. If you miss an issue there, you may not be allowed to raise it later.
You cannot “repackage” a fundamentally different tax position on appeal. A new legal argument is allowed. A new case is not.
Consistency in tax positions is critical. If a client declares an amount as gross income and structures their objection around deductibility, they cannot later reverse course and claim it was never income at all.
For tax practitioners, this is a procedural warning to draft objections carefully. Analyse every possible angle before filing. Because once the appeal process starts, the door to new strategies may already be closed. Tax disputes must be properly framed from the start. There are no second chances to redesign your case midstream.
Read the SARS media summary on the case here.
