Prescription: Have my debts prescribed?
What is prescription? As a general rule, prescription occurs when a debtor’s liability to pay a specific debt is extinguished as a result of the passing of a prescribed time period. As soon as a debt prescribes, a debtor is no longer under any obligation to pay it. It is still legal for the creditor to demand payment or even sue for a prescribed debt. The debtor will then, however, be able to raise the defence of prescription. It is for this reason, that debtors need to be aware of prescription – to protect themselves from debts they are no longer liable for. On the other hand, creditors must also be cognizant to pursue claims timeously. The Prescription Act prescribes the time periods after which specific debts prescribe. Most civil claims prescribe after 3 years. There are however various exceptions hereto, but only a few is listed below: Debts relating to negotiable instruments prescribe after 6 years. Judgment debts, debts secured by mortgaged bonds and debts owed to the state, for example, prescribe after 30 years. When does prescription start to run? The abovementioned prescriptive periods start to run as soon as the debt is due. When the debt is “due” will depend on when the identity of the debtor is known and when the facts from which the debt arises are known to the claimant. Importantly, prescription will start running irrespective of whether the creditor is aware of his/her rights. Can the prescriptive time period be delayed? The prescription period can be delayed in certain circumstances in terms of the Prescription Act. A few examples include when the debtor is outside of South Africa, the creditor is a minor, or the debt is the object of a dispute in arbitration. Such a restriction will stop on, after, or within one year before the normal prescription period will end. If the latter happens, one year will be added after the date on which the restriction stopped. The running of prescription will be interrupted by an acknowledgement of debt by the debtor and/or a summons being served by the creditor on the debtor, claiming performance in terms of the debt. An acknowledgement of debt can take various forms and may be written or verbal. It is however advisable that creditors should reduce acknowledgements of debt to writing, because of its evidentiary value. Conclusion A debtor should not be burdened by a debt indefinity, especially since costs and interest will be added to the outstanding debt. A creditor also benefits from the sense of urgency created by prescription, in that the recovery of his/her debt will be quicker. Whether a debt is due by you or owed to you, it would be advisable to consult with your attorney to determine the best way forward. This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Is it time for SARS to end arbitrary tax and VAT inquiries?
The Tax Administration Act provides for the audit and verification of taxpayers’ tax returns for all taxes administered by the Commissioner for the South African Revenue Service (SARS). In many instances, such requests for information are general, boiler-plate letters received by taxpayers, not indicating specifically what additional information SARS requires in the circumstances and which supporting documents must be provided. In recent times, in respect of both income tax and value-added tax, SARS has taken an arbitrary approach in issuing additional assessments based on information provided by taxpayers in response to the inadequate (or vague at best) requests for information. Income tax Many taxpayers (who are natural persons) have recently received a request from SARS in which they list the bank accounts that are registered in the name of the taxpayer, as well as a summary of the total number of credits (deposits) made into these respective bank accounts. SARS then requests the taxpayer to explain why those credit amounts should not all be included in the taxpayer’s taxable income. This is a highly arbitrary approach followed by SARS in accepting that all deposits made into a taxpayer’s bank account constitutes income. There can, of course, be multiple other reasons for such deposits, including donations between spouses, receipt of gifts, loan funding received, prize winnings, transfers between the taxpayer’s own accounts, transfers out of bond accounts into current accounts, et cetera. This approach displays a lack of understanding regarding commercial realities and places the taxpayer on the back foot: having to discharge the onus of amounts that should not be classified as income. Value-Added Tax Arguably, no VAT vendor in South Africa has escaped frustration from the administration of the VAT system, particularly as it relates to the verification of VAT returns. A practice that has recently emerged is that if one or two pieces of supporting documents provided to SARS does not meet the requirements of a valid tax invoice, SARS immediately, and without further inquiry, disallows all input VAT claimed by a taxpayer during the relevant tax period. This is a highly invasive approach in which SARS accepts that none of the goods and services received by a vendor during that period is valid, or that they lack supporting documents. Unless SARS is specific in their requests, a taxpayer cannot identify the information that should be provided to them. The blanket disallowance of all input VAT is an irrational practice that should be addressed at the appropriate level. The examples above merely illustrate some of the arbitrary practices that taxpayers have recently been confronted with – as such, taxpayers are advised to carefully navigate the dispute resolution process, since providing SARS with incorrect information, or making incorrect statements in their correspondence with the revenue authority, may lead to severe prejudice as a result of these unacceptable practices. This article is a general information sheet and should not be used or relied on as legal or other 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 legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)