When SARS disagrees with your valuation, the burden is on you — not on them
Capital gains tax, donations tax and share transactions all turn on the value of a business. If SARS questions your figure, you have to prove it. A number your accountant pencilled in to fit the return is not proof. Here is what is.
A surprising amount of tax depends on a single, contestable number: what a business or a shareholding is worth. The moment shares change hands, are gifted, are restructured, or are deemed to be disposed of, SARS has a view on the value — and where the value is uncertain, SARS is entitled to challenge whatever you reported. The part owners underestimate is who carries the burden. It is not SARS’s job to disprove your figure. It is yours to defend it.
Where a business value triggers a SARS question
The same valuation question turns up across several taxes, and each one is a place where a weak number costs money.
Capital gains tax. When you sell a business or shares, dispose of them to a connected party, or trigger a deemed disposal — at death, on emigration, or on certain restructurings — the gain is measured against market value. If the price was not at arm’s length, SARS substitutes market value, and the size of the gain follows the figure you can defend.
Donations tax. If shares move for less than they are worth — a common feature of family transfers, succession arrangements and some empowerment deals — the shortfall between price and value can be treated as a donation and taxed accordingly. The tax is driven entirely by the gap, so the value is the whole argument.
Share and restructuring transactions. Asset-for-share, intra-group and other roll-over transactions, and the anti-avoidance rules that sit around share dealings, all assume the parties can support the values used. Where a transaction is priced off a value SARS does not accept, the relief can fall away.
In every one of these, the rate and the rules are SARS’s; the value is yours to establish. That is the leverage point — and the exposure.
Why “we used the accountant’s number” is not a defence
When a value is queried, the first thing produced is usually the figure that went into the financial statements or the return, with the explanation that the accountant arrived at it. This rarely holds, for two reasons.
The first is independence. The accountant who prepares the company’s accounts and the owner’s tax return is not independent of the taxpayer. SARS knows it, and so does any dispute-resolution panel. An in-house figure carries little weight precisely because the person who produced it acts for the party who benefits from it.
The second is method. Net asset value off the balance sheet, a multiple someone remembered from a deal years ago, or a round number that made the return balance — none of these is a valuation. They are estimates with no documented basis, no normalisation of the earnings, no stated premise of value and no evidence trail. Under challenge they collapse, because there is nothing underneath them to test.
What SARS — and a tax court — actually want to see
A figure that survives a SARS challenge looks nothing like a pencilled-in estimate. It states its purpose and its basis of value before it states a number. It fixes the valuation date and works from the information available at that date, not with the benefit of hindsight. It normalises the earnings — stripping out the owner’s above- or below-market remuneration, related-party rent, and once-off items — and explains every adjustment. It applies a method appropriate to the business, cross-checks the result against a second approach, and tests it against the net asset value as a floor. And it records the evidence and the reasoning for each judgement, so that an independent reviewer can follow how the number was reached.
The discipline that makes a valuation defensible to an opposing expert in a dispute is the same discipline that makes it defensible to SARS. The audience is different; the test is identical — would this hold up if the other side went looking for the weak point?
Independence is the asset, not an extra
It is worth being plain about why an outside valuer helps here, because it is not about credentials for their own sake. The value of an independent opinion to SARS is precisely that it does not move with the taxpayer. The conclusion is not engineered to minimise a gain or a donation; it is reasoned from the evidence and would read the same whoever had commissioned it. That neutrality is what gives the figure weight in a query, an objection or an appeal. A valuation written to produce a convenient answer has the opposite effect — it invites SARS to look harder.
Where one-directional adjustments give you away
The temptation in a tax matter is to lean the assumptions in the helpful direction — high remuneration add-backs that flatter earnings when you want value low, or the reverse when you want it high. A competent SARS reviewer reads adjustments for direction. If every judgement happens to push the same way, the report looks engineered, and the credibility of the whole figure goes with it. The number that wins is the one where the adjustments go in whichever direction the evidence points, including the ones that work against the taxpayer. That is uncomfortable to commission and it is exactly why it is persuasive.
Get the number before SARS sets one for you
The pattern that costs the most is reporting a soft figure and dealing with the consequences when the query arrives — by which time the transaction is done and the position is harder to defend. A defensible valuation prepared at the time of the transaction does the opposite: it puts the strongest figure you can support in your hands before SARS forms its own view, and it gives your tax adviser something solid to stand on if a query ever comes.
If a transaction, a disposal or a SARS query turns on the value of a business, the first conversation is free. No pitch, no pressure — send me the one question you have and I’ll answer it personally, by WhatsApp or email. Where a full valuation follows, the fee is fixed and scoped to your situation, never contingent on the figure, and most are completed within about a week once I have the information I need.