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Income Tax Act, 1962 (Act 58 of 1962)

Regulations issued under Section 91A of the Income Tax Act, 1962

Part 5: Compromise of tax debt

12. Circumstances where not appropriate to compromise tax debt



Notwithstanding paragraph 9, the Commissioner may not compromise any amount of tax debt if-

a) the amount payable by the debtor in terms of the agreement to compromise will be less than the market value of the total assets of the debtor, which can be applied to reduce the tax debt, after deducting the liabilities of that debtor other than the tax debt;
b) the compromise will prejudice other creditors (unless the affected creditors consent to the compromise) or where other creditors will be placed in a position of advantage relative to the Commissioner;
c) any other creditor has communicated its intention to initiate or has initiated liquidation or sequestration proceedings;
d) the tax affairs of the debtor (other than the outstanding tax debt) are not up to date;
e) the only reason to support the request to compromise is the debtor's claim of hardship in paying the tax debt, including the need to sell a home or business;
f) the purpose of the decision to compromise is-
i) to assist a debtor who has become overcommitted;
ii) to save a business from failure or closure, regardless of whether or not a large number of people depend on the business for employment or the activities of the business serve a national interest;
iii) to alleviate harsh or unfair operation of a tax law in particular circumstances; or
iv) to further a charitable objective or to create a benevolent public image for the Commissioner;
g) there will be no benefit for the Commissioner in the compromise other than collecting an amount equal to the return that would flow from the sequestration or liquidation of the debtor;
h) it may adversely affect broader taxpayer compliance;
i) the debtor within the period of five years immediately before the request for the compromise was-
i) a party to an earlier agreement with the Commissioner to compromise an amount of tax debt;
ii) sequestrated or liquidated; or
iii) a party to a compromise or arrangement with the debtor's creditors, as contemplated in section 311 of the Companies Act, which was sanctioned by the Court;
j) the debtor is a company or a trust and any director, trustee or person acting in the management of the debtor-
i) has been involved in fraud or tax evasion; or
ii) has a past history of being involved in failed companies or trusts;

and the Commissioner has not first explored action against or recovery from the personal assets of those directors, trustees or persons.