According to the Supreme Court of Appeal, the answer is no. In Commissioner for the South African Revenue Service v Erasmus (handed down on 5 March 2026), the court ruled that SARS cannot fundamentally alter the factual basis of a GAAR assessment once it has already been issued.

The decision serves as a reminder that even in the fight against tax avoidance, SARS must follow the procedures prescribed by law.

The dispute

The case arose from a complex series of corporate transactions involving shares, trusts and dividend distributions.

At the centre of the dispute were dividends exceeding R1.2 billion paid to the taxpayer by a company called Treemo. SARS believed the transactions surrounding the dividends formed part of an impermissible tax avoidance arrangement designed to exploit historical secondary tax on companies (STC) credits.

SARS therefore issued a GAAR assessment, holding the taxpayer liable for approximately R183.5 million in dividends tax, together with a substantial understatement penalty and interest.

The taxpayer disputed the assessment and appealed to the Tax Court.

However, the real controversy did not concern whether the transactions were avoidance arrangements. Instead, it concerned whether SARS was allowed to fundamentally change the basis of its case after the assessment had already been issued.

SARS changed its theory

Initially, SARS argued that the dividends received by the taxpayer were effectively funded by a share repurchase transaction involving another company.

But during the course of litigation SARS reconsidered the evidence. It eventually accepted that the dividends were funded differently: through a subscription of shares by a trust and a related call option arrangement.

In its formal litigation statement opposing the taxpayer’s appeal, SARS therefore abandoned its original explanation of the arrangement and replaced it with a new one.

The tax amount claimed remained the same, but the factual foundation of the avoidance arrangement was significantly altered.

The taxpayer objected and argued that this constituted an irregular procedural step.

The procedural issue

Under the GAAR provisions of the Income Tax Act, SARS must first issue a notice explaining why it believes the anti-avoidance rules apply. The taxpayer is given an opportunity to respond before SARS makes a final determination and issues an assessment.

The purpose of this process is obvious: a taxpayer should know the case they must meet before the assessment is finalised.

SARS relied on two provisions to justify the changes to its case.

First, it argued that section 80J(4) of the Income Tax Act allowed it to modify its reasons for applying GAAR “at any stage”.

Second, it relied on Rule 31 of the Tax Administration Act rules, which allows SARS to introduce new grounds of assessment when opposing a tax appeal.

The SCA rejected both arguments.

Why the court ruled against SARS

The court held that section 80J(4) allows SARS to modify its reasons only before a GAAR assessment is issued, not afterwards. Once the assessment has been made, the earlier notice has served its purpose and cannot be retrospectively rewritten.

Allowing SARS to change its reasons after the fact would undermine the structured process created by the GAAR provisions.

The court also rejected the argument that Rule 31 could be used as an independent source of power to alter the case.

While Rule 31 allows new grounds of assessment in some circumstances, it does not permit SARS to fundamentally alter the factual and legal basis of a GAAR assessment. If such a change is required, SARS must issue a revised assessment instead.

In this case, the court concluded that SARS had effectively attempted to exercise its GAAR powers again — but without following the statutory steps required to do so.

The result was that SARS’s litigation statement was declared an irregular step and set aside.

Why the judgment matters

Although the dispute turned on technical provisions of tax law, the implications are far broader.

The judgment confirms that SARS cannot fundamentally change the basis of a GAAR assessment once it has been issued. If the revenue authority later concludes that the facts support a different avoidance arrangement, it must follow the statutory process again and issue a revised assessment.

In short, SARS must make its case properly at the outset — it cannot rebuild it during litigation.

Second, the decision emphasises the importance of the pre-assessment notice procedure in GAAR cases. This stage is not a mere formality; it is designed to protect taxpayers by ensuring procedural fairness.

Third, the ruling confirms that litigation rules cannot be used to bypass statutory limits on SARS’s powers.

Even where SARS ultimately believes its revised analysis is correct, it must still comply with the procedural framework created by Parliament.

A broader message

The SCA’s decision strikes a careful balance.

On the one hand, it does not weaken SARS’ ability to challenge aggressive tax planning. The GAAR remains a powerful tool.

On the other hand, the judgment ensures that the exercise of that power remains lawful, transparent and procedurally fair.

In tax administration, as in all areas of public law, the end does not justify the means.

The Erasmus judgment therefore reinforces a simple but important principle: even in the fight against tax avoidance, SARS must exercise its powers within the limits set by Parliament.