, LML4804
ASSIGNMENT 3 SEMESTER 2
2026
DUE 8 SEPTEMBER 2026
QUESTION 1
The Commissioner of SARS has invoked the General Anti-Avoidance Rules (GAAR) by issuing section
80J notices and section 80B assessments. Your advice to Yaya must centre on the legal definition of
an "impermissible avoidance arrangement" as set out in section 80A of the Income Tax Act,
explaining the cumulative requirements that must be met for SARS to successfully apply these
provisions.
1. Definition of an 'Impermissible Avoidance Arrangement'
An arrangement is deemed an "impermissible avoidance arrangement" under Part IIA of the
Income Tax Act if it meets a specific set of requirements laid out in section 80A . The term is
defined by a combination of a purpose test, a tax benefit result, and one or more "tainted"
elements that indicate the arrangement is abnormal or abusive .
2. Requirements for Application of Section 80A
For SARS to successfully invoke the GAAR against Yaya and Themba-Bread, it must prove that all
the following requirements are met (Silke & M Stiglingh, 2021:32.2). These are not alternative
conditions but cumulative elements that must exist simultaneously.
Requirement 1: There must be an "Arrangement"
The first step is to establish that an "arrangement" exists. Section 80L of the Act provides a very
broad definition, encompassing "any transaction, operation, scheme, agreement or understanding
(whether enforceable or not), including all steps therein or parts thereof" (Silke & M Stiglingh,
2021:32.2). In Yaya's case, the "arrangement" would likely be the entire chain of events: the initial
purchase of the company with its assessed loss, the management of the company to make it
successful, and the subsequent sale of the shares to Owethu, which enabled the utilisation of the
loss against the income.
Requirement 2: The Arrangement must result in a "Tax Benefit"
An arrangement is an "avoidance arrangement" if it results in a "tax benefit" (Silke & M Stiglingh,
2021:32.2). The term "tax benefit" is defined in section 1(1) and includes "the avoidance,
postponement or reduction of any liability for tax" (Silke & M Stiglingh, 2021:32.2). In the scenario,
the utilisation of the assessed loss of R1.5 million against taxable income of R1 million, resulting in
a substantial tax benefit, clearly satisfies this requirement.
ASSIGNMENT 3 SEMESTER 2
2026
DUE 8 SEPTEMBER 2026
QUESTION 1
The Commissioner of SARS has invoked the General Anti-Avoidance Rules (GAAR) by issuing section
80J notices and section 80B assessments. Your advice to Yaya must centre on the legal definition of
an "impermissible avoidance arrangement" as set out in section 80A of the Income Tax Act,
explaining the cumulative requirements that must be met for SARS to successfully apply these
provisions.
1. Definition of an 'Impermissible Avoidance Arrangement'
An arrangement is deemed an "impermissible avoidance arrangement" under Part IIA of the
Income Tax Act if it meets a specific set of requirements laid out in section 80A . The term is
defined by a combination of a purpose test, a tax benefit result, and one or more "tainted"
elements that indicate the arrangement is abnormal or abusive .
2. Requirements for Application of Section 80A
For SARS to successfully invoke the GAAR against Yaya and Themba-Bread, it must prove that all
the following requirements are met (Silke & M Stiglingh, 2021:32.2). These are not alternative
conditions but cumulative elements that must exist simultaneously.
Requirement 1: There must be an "Arrangement"
The first step is to establish that an "arrangement" exists. Section 80L of the Act provides a very
broad definition, encompassing "any transaction, operation, scheme, agreement or understanding
(whether enforceable or not), including all steps therein or parts thereof" (Silke & M Stiglingh,
2021:32.2). In Yaya's case, the "arrangement" would likely be the entire chain of events: the initial
purchase of the company with its assessed loss, the management of the company to make it
successful, and the subsequent sale of the shares to Owethu, which enabled the utilisation of the
loss against the income.
Requirement 2: The Arrangement must result in a "Tax Benefit"
An arrangement is an "avoidance arrangement" if it results in a "tax benefit" (Silke & M Stiglingh,
2021:32.2). The term "tax benefit" is defined in section 1(1) and includes "the avoidance,
postponement or reduction of any liability for tax" (Silke & M Stiglingh, 2021:32.2). In the scenario,
the utilisation of the assessed loss of R1.5 million against taxable income of R1 million, resulting in
a substantial tax benefit, clearly satisfies this requirement.
