South Africa’s Revenue Service (SARS) has sharpened its enforcement tools, making it harder for taxpayers to avoid penalties under the Tax Administration Act. The latest amendment, effective 1 April 2026, narrows the scope of the long‑relied‑upon “bona fide inadvertent error” defence, shifting the way understatement penalties are applied.
Penalties as a Revenue Tool
SARS has increasingly leaned on penalties as a means of revenue collection. These penalties fall into three categories:
- Administrative non‑compliance
- Percentage‑based penalties
- Understatement penalties
Understatement penalties can be severe, ranging from 10% to 150% in standard cases, and up to 200% where taxpayers are obstructive or repeat offenders.
The Changing Role of the Error Defence
Previously, taxpayers could argue that an understatement was the result of a bona fide inadvertent error, keeping them outside the penalty regime altogether. This defence often neutralised SARS’s claims, even when behaviours such as “reasonable care not taken” or “gross negligence” were alleged.
This structure frustrated SARS, as it allowed taxpayers to bypass the penalty framework entirely. The amendment now forces SARS to first test whether the understatement stems from one of the listed non‑compliant behaviours.
What Happens Now
- If SARS finds no evidence of blameworthy behaviour, the taxpayer escapes a penalty.
- If the understatement is substantial (the greater of R1 million or 5% of the tax chargeable/refundable), penalties apply regardless.
- Only then can the bona fide error defence or a legal opinion from an independent tax practitioner be used to challenge the penalty.
Recent court cases, including Thistle and Coronation, showed that taxpayers could still succeed with this defence when backed by a professional opinion. But the pathway is narrower and more demanding.
Why the Law Changed
According to the official memorandum, the concept of bona fide inadvertent error had become “contentious” and undermined the clarity of the penalty regime. The amendment repositions “substantial understatement” as a residual category, triggered only when the prejudice to the fiscus is objectively significant.
That while the amendment doesn’t always change the final outcome, it makes life harder for taxpayers. Before April, invoking the error defence could keep them outside the penalty system entirely. Now, they must first defeat behavioural allegations and may still face penalties if the understatement crosses the statutory threshold.
Disclosure and Timing Requirements
For behavioural penalties, no error‑based defence remains. For substantial understatement, a limited error defence survives, but only if strict conditions are met:
- Full disclosure of the arrangement must be made by the return due date.
- An independent tax practitioner’s opinion must also exist by that date, confirming the taxpayer’s position is more likely than not to succeed in court.
If the opinion is incomplete or based on only part of a transaction, it may not protect the taxpayer.
The Bottom Line
Taxpayers now face a tougher environment. The amendment ensures SARS can pursue penalties more effectively, while limiting the scope for taxpayers to rely on inadvertent error claims. The only reliable escape routes are full disclosure and a robust, timely legal opinion.
