When will an expatriate be considered a resident for tax purposes in SA?

Many expatriates decide, for various reasons, to return to South Africa after spending extended periods abroad. Let us briefly look at the following case study: Mr X emigrated from South Africa to a foreign country during the 1980s. He now wishes to return to South Africa. He built up a wealth of foreign assets and assures you that he will not receive income from a South African source.

The two questions that are often raised in such a case will be answered briefly below:

When will Mr X be considered a resident for tax purposes in South Africa?

In terms of our Income Tax Act (ITA) no. 58 of 1962, Mr X will become a resident in South Africa for tax purposes when he becomes ordinarily resident in South Africa. “Ordinarily resident” is a concept that is not defined in the ITA, but which has been interpreted by our courts from time to time.

As soon as Mr X has finally made up his mind that he wishes to relocate permanently to South Africa he will become a resident for tax purposes in the Republic.

It is submitted that there will be a so-called “window period” during which a non-resident may live in South Africa, but will remain non-resident for South African tax purposes, until such time as he may change his intention and take steps to carry it out. The “window period”, however, cannot continue for an unlimited period and accordingly, the physical presence test exists in our law. The definition of “resident” in section 1 of the ITA provides that a person shall become a resident for tax purposes in South Africa if that person was physically present in the Republic:

• for a period exceeding 91 days in aggregate during the relevant year of assessment;
• for a period exceeding 91 days in aggregate during each of the five years of assessment preceding such year of assessment; and
• for a period exceeding 915 days in aggregate during those five preceding years of assessment.

With the result that as from the first day of the sixth year of assessment, Mr X will become a resident for South African tax purposes based on the “physical presence” test. Note that the latter test will only apply in cases where Mr X has not yet, after living in South Africa for five years, finally decided that South Africa is now his ‘real home’.

Will Mr X need to register as a taxpayer in South Africa?

In terms of section 66 of the ITA every person who at any time

• becomes liable for any normal tax, or
• who becomes liable to submit any return contemplated in section 66 of the ITA must, within 60 days after so becoming a taxpayer, apply to the Commissioner to be registered as a taxpayer.

Each year, usually during July, the South African Revenue Service (SARS) issues a Government Notice in terms of section 66 of the ITA, which calls for the furnishing of returns by taxpayers. It is relevant for Mr X to note that in terms of the 2010 Government Notice, the following natural persons are required to submit a return and thus register as taxpayers:

• Every resident who during the 2010 year of assessment held any funds in foreign currency or owned any assets outside the Republic, if the total value of those funds and assets exceeded R50 000 at any state during that year.

Until such time as Mr X becomes a resident for tax purposes, he will not need to register as taxpayer, provided that he earns no gross income from a South-African source. When he becomes a resident, Mr X will have to register as a taxpayer and submit an income tax return based on the fact that the value of his foreign assets exceed R50 000. Mr X will have to declare his worldwide income in South Africa, when he becomes a resident here.

Article supplied by the Exceed Group. For more information, visit www.exceed.co.za.