TAX3704 Assignment 2 Semester 2 2026 – Due 14 September 2026

Description

TAX3704 ASSIGNMENT 2 2026
DUE 14 SEPTEMBER 2026

QUESTION 1

Names used throughout: Mafumo Pty (Ltd) (“Mafumo”) and Mr Awesomeness.

1. Understatement penalty
Describe the term understatement as per section 221 of the TAA and apply the
definition of ‘understatement’ to the scenario.
Section 221 of the Tax Administration Act 28 of 2011 (TAA) defines an “understatement”
as any prejudice to SARS or the fiscus as a result of one or more of the following:
a default in rendering a return;
an omission from a return;
an incorrect statement in a return;
failure to pay the correct amount of tax if no return is required; or
an impermissible avoidance arrangement.
In the present case, Mr Awesomeness omitted consulting income of R200 000 from
Mafumo’s 2025 year of assessment return. The omission resulted in the tax originally
assessed being R1 000 000, whereas the tax correctly assessed including the omitted
income)is R1 056 000. This difference of R56 000 constitutes prejudice to SARS/the
fiscus. The omission therefore falls squarely within the definition of an understatement
under section 221 of the TAA.