As most of you know SA has brought in a new tax law called Residence Based tax on 1 January 2001. Liability for tax is therefore generally dependent either upon the place of residence of a person, or the case of non-residents upon the source or deemed source of the income certain specific provisions of the Act.
- The tax base includes the world-wide gross income of residents of SA, subject to certain exemptions (in other words amounts that are tax free).
- Foreign taxes paid by residents will be allowed as a credit against the SA tax liability.
- Foreign residents (non-residents) will continue to be taxed on their income from a South African source or deemed to be from a South African source.
The principle of Residence Based Tax is that a resident will be taxed on gross world-wide income excluding exemptions and less deduction.
To avoid the impact of double taxation where a foreign country taxes income in the hands of a resident, the foreign tax paid will be allowed as a credit against the SA tax liability. Foreign tax credits can never exceed SA payable on the total amount of foreign income received by a resident during a year of assessment.
A person who qualifies as a “resident” is subjected to tax in the Republic on all his income worldwide subjected to certain exceptions such as persons working on ships in international waters that have an up to date seaman’s book and works more than 183 days outside SA etc. A non-resident is subject in the Republic only on receipts and accruals of a source or deemed source to be within the Republic; also subject to certain exceptions.
The following persons are defined as being a “resident”
- A natural person who is ordinary resident in SA
- A natural person who is not at anytime during the year of assessment ordinary resident in the Republic, but who is physically present in the Republic for certain periods.
Residence and ordinary residence of an individual
The term ‘resident’ is either a person ordinarily resident in the Republic or a person who meets the requirements of the ‘physical presence’ test. The term ‘ ordinarily resident’, which may be of fundamental importance in determining whether a person is subject to tax in the Republic on his world-wide receipts and accruals
Ordinary Resident
The question whether a person is ordinarily resident in a country is one of fact and each case must be decided on its own facts having regard to principles already established by law.
A physical presence at all times is not a requisite to be ordinarily resident in the Republic. The following two requirements need to be present:
- an intention to become ordinarily resident in a country; and
- steps indicative of this intention having been or being carried out.
A person’s mode of life may be such that it cannot be said that he or she has a real home anywhere. A common feature of multinational corporations is that certain staff is virtually permanent wanderers. In such a case the burden would be on the taxpayer to discharge the onus that he/she is not ordinarily resident in the Republic. It is not possible to lay down any clearly defined rule or period to determine ordinarily residence.
he purpose, nature and intention of the taxpayer’s absence must be established to determine whether the taxpayer is still ordinarily resident. The following factors will be relevant in considering the above two requirements:
- most fixed and settled place residence
- habitual abode, i.e. present habits and mode of life
- place of business and personal interest
- status of individual in country, i.e. immigrant, work permit periods and conditions, etc
- location of personal belongings
- nationality
- family and social relations (schools, church, etc)
- political, cultural or other activities
- application for permanent residence
- period abroad; purpose and nature of visits
- frequency of and reasons of visits
The above list is not intended to be exhaustive or specific, merely a guideline.
The physically present test is based on the number of days during which a natural person is physically present in the Republic.
The application of the physical presence test must be done annually and consists of three requirements. These are that the person must be physically present in the Republic for a period exceeding:
- 91 days in total during the year of assessment under consideration, i.e. 2004 tax year;
- 91 days in total during each of the three years of assessment preceding the year of assessment under consideration, 2003, 2002 and 2001; and
- 549 days in total during the three preceding years of assessment.
A natural person as to meet the all 3 requirements before he/she becomes a resident. A natural person’s year of assessment starts on 1 March and ends on the last day of February in the subsequent year.
The physical presence test does not apply to persons who are ordinarily resident in the Republic:
- if a person is ordinarily resident, for example, because his real home is in the Republic, the number of days he is present in or absent from the Republic is of no significance from his status as a resident. If a person is ordinarily resident at any time during the current year of assessment, the physical presence test will also not apply.
A person is taxed as a resident until the day of ceasing to be resident and as a non-resident thereafter, but it cannot be known with certainty until the year of assessment after he ceases to be physically present in the Republic whether he will have been physically absent for at least 330 days in order to be no longer resident.
If person who is ordinarily resident in the Republic is physically absent for a continuous period of 330 days, for example, in order to study in a foreign country, he will not ceased to be a resident as the physical presence test does nor apply to ordinary residents.
You have to remember that if you have any direct interests in SA, i.e get a salary, have a business, close corporation, farm, etc, you will be taxed here on that income.
Teresa Louw
Worldwide Tax Solutions
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