The Right to Request Reasons

South African taxpayers often face uncertainty when dealing with assessments issued by the South African Revenue Service (SARS). Rule 6 of the rules made under section 103 of the Tax Administration Act 28 of 2011 gives taxpayers the right to request reasons for an assessment before filing an objection. This right is a cornerstone of tax dispute resolution, ensuring that individuals and companies are not forced to challenge an assessment without first understanding the rationale behind it.

Put simply, SARS must not only say what it has decided, but also why. Without proper reasons, taxpayers cannot prepare a meaningful objection, particularly in complex cases involving the General Anti-Avoidance Rules (GAAR) or other anti-avoidance provisions.

Recent Tax Court Judgment: BCJ v Commissioner for SARS

The importance of Rule 6 was underscored in BCJ v Commissioner for the South African Revenue Service (2024/8) [2025] ZATC 7, delivered on 23 May 2025.

Background

• SARS issued a Letter of Findings (LOF) in June 2023 regarding the taxpayer’s 2020 assessment year.
• The LOF included a notice under section 80J of the Income Tax Act 58 of 1962, stating that SARS intended to apply the GAAR to a series of transactions, including a share sale and capital gain.
• SARS cited indicators such as round-trip financing, non-arm’s length dealings, offsetting arrangements, and lack of commercial substance to conclude that the transactions were “impermissible avoidance arrangements.”
• Despite these findings, SARS did not clearly explain why it believed the arrangement had occurred “in a business context” a critical element required under section 80A of the Income Tax Act.

The taxpayer disputed SARS’ conclusion, requested reasons under Rule 6, and eventually approached the Tax Court after SARS’ response failed to address the specific issue raised.

The Court’s Findings

The Tax Court held that:

• While SARS provided reasons for why the arrangement lacked commercial substance, it failed to give reasons for why it was treated as occurring in a business context.
• This omission amounted to a failure to comply with Rule 6.
• Adequate reasons must directly address the taxpayer’s request and cannot merely restate conclusions.

The Court ordered SARS to provide proper reasons within ten days.

What Counts as “Adequate Reasons”?

The judgment drew on established case law, including Commissioner for SARS v Sprigg Investment 117 CC and Minister of Environmental Affairs and Tourism v Phambili Fisheries (Pty) Ltd. From this jurisprudence, the following principles emerge (often called the Phambili test):

• Reasons must be more than bare conclusions.
• SARS must explain its understanding of the relevant law and the factual findings underpinning its decision.
• Explanations must be clear, simple, and free of vague generalities, so that the taxpayer understands why the decision went against them.

In short, adequate reasons empower taxpayers to say: “Even if I disagree, I now understand why SARS made this decision, and I can decide whether to challenge it.”

Why Rule 6 Matters for Taxpayers

Rule 6 is not a procedural formality, it is a safeguard of administrative fairness. It ensures that taxpayers:

• Understand the legal and factual basis of an assessment.
• Can prepare a comprehensive objection supported by relevant evidence.
• Avoid unnecessary speculation when engaging in dispute resolution.

Key Timelines Under Rule 6

• A request for reasons must be submitted within 30 business days from the date of assessment.
• SARS must reply within 45 business days, with the option of a further 45-day extension.
• Importantly, the taxpayer’s deadline to object only starts running after SARS provides reasons.

Practical Takeaways for Businesses and Individuals

1. Always review SARS assessments carefully, especially LOFs and Notices of Assessment.
2. Use Rule 6 promptly when the rationale is unclear, incomplete, or overly general.
3. Track deadlines for requesting reasons and filing objections to avoid procedural pitfalls.
4. Be specific in your request, clearly identify which aspect of SARS’ reasoning requires explanation.
5. Act in good faith as courts will not support frivolous or delaying requests for reasons.

Conclusion

The BCJ case highlights the critical role of Rule 6 in South African tax law. SARS has a legal duty to provide adequate and clear reasons for its assessments, especially in GAAR disputes. Taxpayers should not hesitate to exercise this right, it ensures fairness, strengthens objections, and upholds transparency in the tax administration process.

For corporates and individuals alike, understanding and using Rule 6 effectively can make the difference between a failed dispute and a successful challenge.