SARS Cannot Change Its Case Mid-Dispute

A recent judgment from the Supreme Court of Appeal ("SCA") in CSARS v Erasmus [2026] ZASCA 22 deals with a point that often arises in tax disputes. Can SARS change the basis of an assessment once litigation has started?

The Court's answer was a very clear no.

Although the case concerned the General Anti-Avoidance Rule (GAAR), the principle confirmed by the Court has wider implications for any assessment issued after a SARS audit or verification.

At its core, the judgment reinforces a basic principle of administrative law. An assessment must stand or fall on the basis on which it was issued.

The Dispute Before the SCA

This matter arose from a substantial dividends tax assessment issued by SARS under the GAAR provisions of the Income Tax Act 58 of 1962.

SARS alleged that a series of transactions involving share transfers and dividend distributions formed part of an impermissible tax avoidance arrangement. The taxpayer disputed this, and the matter proceeded through the dispute process under the Tax Administration Act 28 of 2011 ("TAA").

When the matter reached the Tax Court stage of the dispute process, SARS delivered its Rule 31 statement setting out the grounds on which it opposed the appeal.

The difficulty was that the Rule 31 statement now relied on a different factual basis from the one on which the original GAAR assessment had been issued.

In other words, the assessment was built on one explanation of the transactions, but SARS sought to defend it in court on another.

The taxpayer challenged SARS's approach, and the SCA ultimately agreed with the taxpayer.

The SCA's Approach

The SCA held that SARS cannot use a Rule 31 statement to change the factual foundation of an assessment.

The dispute rules allow SARS to clarify its legal arguments or elaborate on the grounds of assessment only. That is part of the litigation process. What they do not permit is replacing the grounds of the assessment itself.

An assessment is built on a particular explanation of why tax is said to be due. Once that explanation forms the basis of the assessment, it defines the dispute.

SARS cannot later abandon, replace, or materially recast that factual premise through its Rule 31 statement.

If the factual premise underlying an assessment turns out to be incorrect, the proper course is not to reshape the case during litigation.

Allowing SARS to change the factual basis of an assessment in its pleadings would effectively permit a new assessment to be introduced through the litigation process, without the safeguards built into the TAA.

The Implications for Tax Disputes

Although the case concerned GAAR, the reasoning applies more broadly.

Every SARS assessment whether arising from a verification or audit rests on specific findings. Those findings form the foundation of the assessment.

The dispute process that follows exists to test that foundation, not to rebuild it.

This aspect of the judgment is particularly significant in light of the thinking that emerged after the Constitutional Court judgment in United Manganese of Kalahari (Pty) Ltd v CSARS 2025 (5) BCLR 530 (CC). The Constitutional Court confirmed in UMK that proceedings before the Tax Court are wide appeals heard de novo. Following that judgment, a school of thought developed that if the de novo nature of the Tax Court is read together with Rule 31(3), SARS may materially amend or reshape its grounds of assessment at the litigation phase of the tax dispute process.

The reasoning in Erasmus demonstrates that this approach cannot be taken that far. While the Tax Court may hear the matter afresh, the assessment itself remains the anchor of the dispute. The de novo nature of the proceedings does not permit SARS to abandon, replace, or materially recast the factual foundation of the assessment once litigation has begun.

The Central Role of the Assessment

For taxpayers and practitioners, the judgment serves as a useful reminder that the assessment itself remains the centrepiece of any tax dispute.

The Rule 31 statement explains the assessment. It does not create a new one.

Where the case advanced in litigation begins to diverge materially from the basis on which the assessment was issued, procedural challenges may arise.

The SCA's decision in CSARS v Erasmus therefore reinforces an important principle in tax administration: the dispute process exists to test the assessment that was issued, not to construct a new one along the way.