SPECIALIST SARS PENALTY DISPUTE SUPPORT
Understatement Penalties
Understatement penalties can add a substantial amount to an already disputed tax liability. The correct response depends on the behaviour SARS alleges, the evidence supporting that classification and the stage at which the penalty is challenged.
We assist from the point SARS first proposes an understatement penalty through audit representations, objection, appeal and litigation where necessary.
The earlier the behaviour classification is challenged, the more opportunity there is to shape the penalty record before assessment.
At a glance
Understatement penalties turn on behaviour, evidence and the statutory penalty framework.
Identify the alleged behaviour
We establish which section 223 behaviour SARS relies on and whether the facts actually support that classification.
Test SARS’s evidence
The penalty should be examined against the audit record, taxpayer conduct, advice obtained and documents available at the time.
Assess remission routes
Where substantial understatement is the remaining category, the statutory remission grounds must be considered carefully.
Dispute the assessment
Where the penalty is included in an assessment, objection, appeal and further dispute remedies may be available.
Tax Exclusive
Behaviour Analysis
Audit To Appeal
Senior Review
THE PENALTY
The percentage is the result of the classification — not the starting point.
An understatement penalty can range from relatively modest to extremely severe, depending on the behaviour SARS attributes to the taxpayer and whether the matter is treated as a standard, obstructive or repeat case. The real dispute is therefore often about classification, not arithmetic.
The value lies in testing whether SARS can prove the behaviour that drives the penalty percentage.
What is an understatement penalty?
It is a penalty imposed under the Tax Administration Act where an understatement involves a behaviour listed in the section 223 table. The penalty is calculated by applying the prescribed percentage to the relevant shortfall.
What behaviours can SARS rely on?
The statutory table includes substantial understatement, reasonable care not taken in completing a return, no reasonable grounds for the tax position taken, impermissible avoidance arrangement, gross negligence and intentional tax evasion. The percentage increases as the alleged conduct becomes more serious.
What changed from 1 April 2026?
The legislation changed the sequence of the enquiry. SARS must now first establish that the understatement involves a listed behaviour. Bona fide inadvertent error no longer operates as the former front-end exclusion and now remains relevant in the statutory remission context for substantial understatement.
We can assist with
How we approach it
From SARS allegation to a focused behaviour challenge.
We start with the behaviour SARS alleges, then test whether the facts, evidence and statutory framework support the penalty that has been proposed or imposed.
Identify
The Behaviour
We establish which section 223 category SARS relies on and the percentage attached to that classification.
Test
The Evidence
We examine the return, advice, audit record, contemporaneous documents and taxpayer conduct relevant to SARS’s allegation.
Assess
Remission
Where substantial understatement remains in play, we consider the statutory remission grounds, including any qualifying opinion route.
Dispute
The Penalty
We pursue the appropriate audit response, objection, appeal or litigation strategy depending on the stage of the matter.
Strategic considerations
What can materially affect the understatement-penalty outcome.
These disputes are often driven by timing, contemporaneous evidence and the precision of SARS’s pleaded behaviour rather than by the tax shortfall alone.
The audit stage matters more than many taxpayers realise.
SARS often signals the proposed behaviour classification in its audit findings. That stage can be crucial for correcting factual assumptions, producing supporting evidence and challenging an overstated culpability finding before the assessment is issued.
SARS must still prove the behaviour it relies on.
A tax adjustment does not automatically establish gross negligence, lack of reasonable grounds or intentional evasion. The penalty classification must be supported by the facts and evidence relevant to that specific statutory behaviour.
A professional opinion can be important — but timing and content matter.
The post-2026 legislation contains a specific opinion-based remission route for substantial understatement. To qualify, the opinion must satisfy the statutory requirements concerning timing, independence, full disclosure of the facts and the conclusion reached.
Bona fide inadvertent error still exists, but in a different place.
The 2026 amendment removed BFIE as the former gateway exclusion. It now remains relevant as a remission ground for substantial understatement, while the exact meaning of BFIE remains a live interpretive issue.
Frequently asked questions
Important things to know
CONFIDENTIAL PENALTY DISCUSSION
Facing a SARS understatement penalty and unsure whether the classification is justified?
We can review the behaviour SARS alleges, the evidence supporting the penalty and the available remission or dispute routes and help determine the appropriate response. We will confirm scope and fees before any work commences.
