South Africa’s 2026 amendment to the understatement penalty regime has significantly limited taxpayers’ ability to rely on the “bona fide inadvertent error” or “honest mistake” defence. The change shifts the focus from taxpayer intent to taxpayer behaviour, requiring stronger evidence of reasonable care, proper governance and contemporaneous documentation. Tax experts warn that companies, trusts and individuals must now take a more disciplined approach to tax compliance to avoid costly SARS penalties.
Certain tax amendments receive significant public attention, while others effect substantive changes to the balance of power between SARS and taxpayers without widespread notice.
The 2026 amendment to South Africa's understatement penalty regime is an example of the latter.
For years, taxpayers and advisers have debated the meaning of a phrase that sounds simple but carries serious legal consequences: “bona fide inadvertent error”. In ordinary language, it means an honest, unintended mistake. In tax law, it has often been the dividing line between a taxpayer who made an error and a taxpayer who could face an understatement penalty.
This position has now been altered.
