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SECTION 80A(c )(ii) OF THE INCOME TAX ACT

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‘Round-tripping’ between the draft version and the enacted version – part 2

In the first part of this two-part article (ASA April 2009) the meaning of the phrase ‘a misuse or abuse of the provisions’ contained in the enacted version of section 80A(c)(ii) of the Income Tax Act 58 of 1962, as amended (the Act) was investigated. It was established that there is no difference in meaning between this phrase and that of its predecessor in the draft version, ‘frustrate the purpose of any provision’ and that the two phrases could be regarded as synonymous.

In this second part the effect of the synonymous nature of the two phrases, the ‘round-tripping’ contention made in part 1 of this article and the presumed reaction of the South African courts will be examined.

‘Round-tripping’
The ordinary meaning of the word ‘round-tripping’ is ‘a journey to a place and back again’ (South African Concise Oxford Dictionary 2002:1018). This implies an unchanged status quo. If it is discovered that there has been no change in meaning between the draft version of section 80A(c)(ii) and the enacted version, this entails an unchanged status quo, that is, a ‘journey’ from the draft version and then back to it again.

The ‘round-tripping’ contention, with regard to section 80A(c)(ii) of the Act, is summarised in Figure 3.

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Figure 3: Round-tripping of words between the enacted version and the draft version of section 80A(c)(ii) of the Act

The phrase ‘frustrate the purpose of any provision’ (draft version) was ‘traded’ for the phrase ‘a misuse or abuse of the provisions’ (enacted version). It was argued that the words ‘misuse’ and ‘abuse’ are, in essence, synonyms and imply using a provision ‘wrongly’ or for a ‘bad purpose’. This was confirmed by a Canadian precedent: a ‘misuse or abuse’ implies ‘frustrating’ or ‘defeating’ the purpose of a provision. Such a construction has a great amount of resemblance to the words in which the draft version of section 80A(c)(ii) is couched. It therefore seems that grounds exist for the round-tripping allegation.

The effect of the synonymous nature of the two phrases
It was contended in part 1 of this article (ASA 2009: April) that the substitution of the phrase ‘frustrate the purpose of any provision’ by the phrase ‘a misuse or abuse of the provisions’ could result in a significant expansion of Part IIA. However, the synonymous nature of the two phrases implies that the substitution does not result in a broader inquiry under section 80A(c)(ii) and thus no expansion of Part IIA.

The presumed reaction by the South African Court
It is, generally, presumed that, where the legislature uses a different word or expression, the strong inference is that this has been done specifically to provide for a different result.1 Stated in another way, different words usually mean different things. This general presumption could, it is submitted, nullify the round-tripping contention furnished above.

However, if it is established that the assessment with regard to a ‘misuse or abuse’ requires a vague and incomprehensive inquiry2, this could result in a disturbance of the equilibrium between the power of the fiscus and a taxpayer conducting his business. This could plunge Part IIA into a similar predicament to that in which its predecessor, section 103(1), was before the judgment in CIR v King3 when its ambit was considered to be too wide.

Cilliers notes that all taxpayers “are entitled to be placed in a position where they are able to reasonably ascertain, before committing to a certain transaction or course of action, the exact area within which they will be trespassers’’.4 The Court could thus, if it considers the scope of the ‘misuse or abuse’ inquiry as too wide, look negatively at it which could lead to a very narrow and restricted interpretation.5 This, it is submitted, could bestow a meaning upon section 80A(c)(ii) that is largely similar to that of its draft version, which, it is submitted, is a much more confined inquiry.

Conclusion
The ordinary meaning of the phrase, ‘a misuse or abuse of the provisions’, connotes using a provision ‘wrongly’ or for a ‘bad purpose’. A similar meaning is designated to it by the Supreme Court of Canada: ‘frustrating’ or ‘defeating’ the purpose of a provision. Both these constructions have a resemblance to that of the draft version in which section 80A(c)(ii) was cast: ‘frustrate the purpose of any provision’. This contention implies a round-tripping of words between the draft version and the enacted version of section 80A(c)(ii): words are ‘circulated’ between the draft version and the enacted version without any change in meaning.

There exists, however, a general presumption as to a change in meaning, when words to a provision are altered. The precise meaning of the words ‘misuse or abuse of the provisions’ is therefore not apparent. However, if the court considers the ‘misuse or abuse of the provisions’ inquiry as being too wide, it is likely to impart on it a similar meaning as that in which the draft version of section 80A(c)(ii) is cast, which would confirm the ‘round-tripping’ allegation furnished in this article.

Bibliography
Broomberg, E.B., 2008. Then and now – IV: Misuse or abuse. South Africa: Tax Planning. Feb: 31-32.
Canada Trustco Mortgage Company v Canada 2005 SCC 54.
Cilliers, C., 2006. The proposed Section 80A(c)(ii) of the Income Tax Act: should it be enacted? South Africa: The Taxpayer. October: 182-187.
Cilliers, C., 2008a. Thou shalt not peep at thy neighbour’s wife: Section 80A(c)(ii) of the Income Tax Act and the abuse of rights. South Africa: The Taxpayer. May: 85-92.
Cilliers, C., 2008b. Thou shalt not peep at thy neighbour’s wife: Section 80A(c)(ii) of the Income Tax Act and the abuse of rights. South Africa: The Taxpayer. June: 103-111.
CIR v King 14 SATC 184.
Clegg, D., Stretch, R., 2007. Income Tax in South Africa. Durban: LexisNexis.
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Vol 21:36-38.
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Louw, I.D.P., 2007. The new General Anti-Avoidance Rule: A comprehensive discourse on this statute. [Online]. Accessed on 24/05/2007. Available at: http://lawspace.law.uct.ac.za:8080/dspace/ bitstream/2165/357/1/LW XIZA001.pdf.
Meyerowitz, D., Emslie, T.S., Davis, D.M., 2007. Tax Avoidance: Section 80A(c)(ii). South Africa: The Taxpayer. August: 147-160
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OSFC Holdings Ltd v The Queen 2001 FCA 260.
South African Revenue Services, 2005. Discussion Paper on Tax Avoidance and Section 103 of the Income Tax Act. [Online]. Accessed on 12/05/2007. Available at: http://www.sars.co.za.
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South African Concise Oxford Dictionary, 2002. Cape Town, South Africa: Oxford University Press Southern Africa.

References
1. De Koker 2007:9.6
2 If the words ‘a misuse or abuse of the provisions’ do not mean ‘frustrate the purpose of any provision’, then, it is submitted, it implies a vague and incomprehensive inquiry.
3 CIR v King 14 SATC 184
4 Cilliers 2006:185
5 Louw 2007:40

Linda van Schalkwyk CA(SA), MCom, LLB, is an Associate Professor, at the University of Stellenbosch, and Bernard Geldenhuys,
BAcc (Hons), is a trainee at Investec Bank Limited.