Why You Cannot Turn a Missed Refund Into a Tax Deduction
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Your client's clearing agent forgets to submit a refund claim. Two years pass. The refund prescribes. R38 million walks out the door. So you do what any creative tax practitioner might do: you claim the lost amount as a deduction in a later year, calling it a "loss". The Tax Court has just told you why that does not work.
What happened
In Taxpayer EPP v Commissioner for SARS (IT 24852, Johannesburg Tax Court, 14 April 2026), a licensed fuel distributor exported fuel between 2011 and 2015. On every purchase from local manufacturers it paid excise duties and levies, which it was entitled to recover as an exporter under the Customs and Excise Act, provided refund claims were lodged within two years.
In 2013 the company discovered that its clearing agent had not lodged certain refund applications in time. The window had closed. R38 831 547 in excise duties paid during 2011 to 2013 was now permanently irrecoverable.
The company did not claim the excise duties as a deduction in the years they were paid, and did not include them in trading stock under section 22. Instead, in the 2015 return filed in December 2016, it claimed the full R38.8 million as a section 11(a) deduction, arguing it was a "loss" suffered when the refund right finally prescribed.
SARS disallowed the deduction, imposed a 10% understatement penalty, and added section 89quat interest. The Tax Court agreed with SARS on all three.
Why the case matters for your practice
There are five lessons here, and they apply to almost every practitioner.
"Expenditure" and "loss" are not interchangeable just because it suits the return.
The taxpayer leaned on the Supreme Court of Appeal's distinction in Sentra-Oes Kooperatief between voluntary expenditure (disbursements made willingly) and involuntary loss (fortuitous deprivations). Clever argument. The court rejected it. The R38.8 million was paid voluntarily, on purchase invoices, in the ordinary course of trade. That is expenditure. The fact that the company hoped to recover it through a separate statutory refund mechanism did not change what it was when it left the bank account.
The yearly basis principle is alive and unforgiving.
Section 11(a) requires expenditure to be claimed in the year it is actually incurred. The Sub-Nigel and Caltex principles have not moved. The fuel duties were incurred in 2011 to 2013 when the fuel was bought, not in 2015 when the refund right died. You cannot shift a missed deduction forward to a later year by giving it a new label. As covered in our explainer on why SARS spreads your interest deduction across years under section 24J, timing is built into the architecture of the Income Tax Act. The Tax Court will not let you trade one year for another.
Agent failures are your client's failures.
This is the gut punch for any practitioner who relies on third parties. The clearing agent missed the deadline. The court still refused to waive section 89quat interest, because the taxpayer was responsible for its own tax affairs and for the agents it appointed. If your client outsources VAT, customs, payroll, or anything else, and that third party drops the ball, your client carries the cost. The recourse is a civil claim against the agent, not a tax appeal.
Substantial understatement triggers the 10% penalty even without bad faith.
This is the most important practical point. There was no fraud here. No hidden offshore structure. No kickback. Just a debatable tax position taken in good faith. The court still upheld the 10% understatement penalty because:
The prejudice to the fiscus (R10.87 million in tax) exceeded R1 million.
That meets the definition of a "substantial understatement" in the Tax Administration Act.
It was not a bona fide inadvertent error. The taxpayer deliberately took a position. Section 222 then bites.
10% is the floor in the substantial understatement category. As we explained our previous article, SARS Gets New Teeth, obtaining a contemporaneous written opinion from an independent tax practitioner can significantly assist in demonstrating reasonable care or reasonable grounds for a tax position. However, once a taxpayer deliberately adopts a contentious interpretation, it becomes difficult to rely on the bona fide inadvertent error exclusion.
The Tax Court will not fix a Customs and Excise problem.
The court was explicit: it does not have jurisdiction to decide whether the refund claims would have succeeded had they been lodged in time. That question lives in a different statute, with its own appeal route. If your client has a customs problem, deal with it under the C&E Act. Do not try to convert it into an income tax deduction.
Practical takeaway
Three habits to build into every engagement from this week:
Match the year, not the regret.
When a client tells you about expenditure incurred in an earlier year, ask one question: was it claimed in the year it incurred? If not, do not simply roll it forward into a later year under a different label. First determine whether the original year can still be corrected or reopened. Help them plan, not paper over.
Build an agent audit step.
Once a year, for every client using a clearing agent, payroll bureau, or VAT specialist, get a written confirmation that all statutory deadlines were met for the period. The cost of asking is zero. The cost of not asking, as this case shows, is R38 million plus penalty plus interest.
Get the opinion before the return goes in.
Any deduction that turns on a debatable interpretation of section 11(a), 22, 23, or 24J needs a written opinion from an independent registered tax practitioner, signed off before submission. After the return is filed, the bona fide inadvertent error door is closed.
This case is not flashy. There is no fraud, no R3 billion, no offshore intrigue. That is exactly why it matters. It is the kind of mistake a competent practitioner could make on a Tuesday morning. And the Tax Court has now confirmed the price.