Personal Liability Under Section 180 of the Tax Administration Act (“the TAA”)
Section 180 of the TAA empowers SARS to hold third parties personally responsible for a company’s tax debt if:
- The person “controls or is regularly involved in the management of the overall financial affairs of a taxpayer”; and
- SARS determines that the person acted negligently or fraudulently concerning the taxpayer’s tax debt.
Where a tax debt exists, this would include liability for capital sums due, as well as related penalties and interest.
Holding an official financial title within the company is not necessary—merely being involved in financial decisions can make an individual a target. Directors, shareholders, financial officers, and even informal advisors can be held liable if their actions (or inaction) contribute to tax non-compliance.
The Courts Back SARS’ Powers
The judiciary has reinforced SARS’ authority to pursue third parties. In Greyvensteyn, the taxpayer challenged SARS’ ability to hold him liable for a company’s tax debt, arguing that it violated his constitutional rights. The court, however, confirmed that SARS’s statutory powers do not infringe on constitutional protections, as long as they are exercised lawfully.
This ruling serves as a dire warning: SARS’ pursuit of tax debts is legally sound, and third parties cannot hide behind constitutional arguments to avoid responsibility, where the legal requirements of section 180 of the TAA are met.
The Role of Representative Taxpayers – SARS Won’t Stop at Civil Liability
SARS’s collection arsenal is not limited to section 180. For example, sections 153 to 155 of the TAA impose personal liability on a “representative taxpayer”—any person responsible for managing the tax affairs of a company. This includes public officers, who may be held personally accountable for the company’s unpaid income tax.
The threat of personal liability extends beyond financial penalties. SARS has the power to initiate criminal proceedings against individuals controlling non-compliant companies. This means that merely paying a fine may not be enough – offenders could face criminal charges, and even imprisonment.
Negligence is no excuse. Even if tax non-compliance is due to oversight rather than deliberate fraud, individuals can still be held accountable. SARS has made it clear that ignorance or mismanagement will not shield individuals from legal consequences. This includes where taxpayers are guilty of non-submission of tax returns, or non-payment of taxes rightfully due.
The Hidden Triggers: How Tax Debt Accumulates
Many taxpayers are unaware of how tax debt arises until it’s too late. The most common triggers include:
- Late or non-submission of tax returns, leading to administrative penalties;
- Estimated assessments issued due to unfiled returns;
- Filing tax returns without making the required payment;
- Partial payments that leave outstanding balances;
- Incompetent tax advisors failing to meet compliance requirements; and
- Snowballing of interest and penalties on what was originally a small tax debt.
These seemingly small missteps can snowball into significant liabilities, leaving third parties vulnerable to personal liability claims.
Be Proactive – Protect Your Finances, and Freedom
If a company has outstanding tax debt, taking a wait-and-see approach is a recipe for disaster. SARS’ crackdown means that those involved in financial decisions, even informally, could face devastating financial and legal consequences.
Where there is a significant risk of SARS pursuing personal liability, or a large tax debt due under the name of a company, that requires settlement, legal professional privilege is essential in all SARS engagements. Consulting with a tax attorney to understand potential exposure and implement a proactive strategy is crucial.
If a personal liability notice has already been issued, seeking legal advice is critical to protecting one’s assets, including liquid funds, and mitigating the risk of further prosecution by SARS.
Greyvensteyn’s “precedent setting decision reaffirms SARS’ legal authority to discharge its work of collecting all revenue due to the state in an efficient and effective manner” – this is not the time to bury your head in the sand; being proactive rather than reactive could be the difference between financial ruin, and business recovery!
