By Willem Oberholzer

In the realm of taxation, the burden of proof rests heavily on the taxpayer's shoulders. Every transaction, agreement, or valuation must be meticulously documented and presented when called upon by tax authorities. Yet, a common misconception persists regarding the sufficiency of verbal agreements in tax matters. This misconception can lead to dire consequences, including prolonged disputes with tax authorities and unexpected tax liabilities.

Section 29 of the Tax Administration Act underpins the documentation requirement. This section in the Act stipulates that taxpayers must keep records enabling compliance with tax laws and satisfying tax authorities of their adherence to these laws. This mandate extends to all taxpayers, whether they have submitted returns or not, ensuring accountability across the board.

Moreover, the form and retention of these records are tightly regulated under Section 30 of the Act. Records must be kept in their original form or as prescribed by the tax authorities, emphasising the importance of maintaining the integrity and accessibility of financial documentation. Failure to adhere to these requirements can invite scrutiny and potentially costly repercussions.

In practice, the absence of written agreements often leads to disputes, as verbal agreements lack the concrete evidence necessary to satisfy tax authorities. Such disputes can escalate into protracted legal battles, draining both financial and human resources. What’s more, tax liabilities may be assessed based on the substance of the transaction rather than its legal form, potentially resulting in unforeseen tax obligations.

In essence, taxpayers are responsible for maintaining comprehensive records and documentation, leaving no room for ambiguity or misunderstanding. This responsibility extends beyond mere compliance; it is a safeguard against potential disputes and liabilities. Verbal agreements, while legally binding in common law, often fall short of meeting the tax authorities’ rigorous standards.

Therefore, it is imperative for taxpayers to adopt a proactive approach to record-keeping, ensuring that every transaction is adequately documented and supported by written agreements where necessary. By doing so, taxpayers not only fulfil their legal obligations but also mitigate the risk of costly disputes and unexpected tax liabilities.

In conclusion, the importance of written agreements in discharging the burden of proof cannot be overstated. Taxpayers must recognise their responsibility to maintain accurate and comprehensive records, adhering to the stringent requirements outlined in tax laws and practice notes. In doing so, they safeguard themselves against potential disputes and ensure compliance with tax regulations.

* Oberholzer is a director at Kisch Tax Advisory Services.

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