South Africa (SA) uses a resident-based tax system, which means that residents are taxed on their worldwide income. For non-residents, only receipts and accruals from a South African source are subject to normal tax in South Africa.
An individual is a resident for tax purposes in SA either by way of ordinarily residence or physical presence. The concept of “ordinarily residence” is not clearly defined by law. The determination of whether an individual is an ordinarily resident for tax purposes must be done on a case-by-case basis. Factors to be considered to make such a determination include where your habitual abode is, where your family lives, social and leisurely activities, and the location of your personal belongings, to name but a few.
An individual can also become a tax resident by way of physical presence. A person will enter the South African tax net in their sixth year if they have been in the country for more than 91 days in each of the six years under analysis and a total of at least 915 days in the preceding five years.
An individual who is deemed to be exclusively a resident of another country, for purposes of a double tax agreement, is excluded from the definition of “resident”, regardless of qualifying as a resident under the ordinarily resident or physical presence tests.
Ceasing to be a tax resident in SA
Suppose the taxpayer has been an ordinarily tax resident and they intend to cease being a resident, then various objective factors will determine if they have in fact ceased to be a tax resident in SA. These factors include the type of visa on which they have left the country, proof of permanent residence in the foreign country, a tax residency certificate obtained from the foreign revenue authority, details of any property-, business interests-, family- and social interests left in SA as well as any return visits to SA along with their frequency and reasons for these visits.
An individual regarded as a tax resident by virtue of the physical presence test will cease to be a resident when that person is physically outside the Republic for a continuous period of at least 330 full days.
An individual who has become a tax resident of another country through the application of a double tax agreement will also cease to be a resident for tax purposes in SA.
A deemed disposal for capital gains tax purposes occurs when an individual breaks their tax residence. This is often referred to as “exit tax”. The individual will be deemed to have disposed of their worldwide assets, excluding immovable property situated in SA, on the day which they ceased to be tax resident.
Once a person has ceased to be a tax resident in South Africa, such person is no longer taxed in South Africa on his or her worldwide income, but only on South African sourced income.
The capital gains tax resulting from ceasing to be a tax resident is payable, either as part of provisional tax payments or on assessment, depending on the timing of ceasing residency.
Taxpayers must notify the South African Revenue Service (SARS) that they have ceased tax residency, by way of the following two methods:
If a taxpayer ceased to be a tax resident during the current assessment year, the taxpayer could inform SARS through the wizard on the income tax return (ITR12). The date on which the taxpayer ceased to be a tax resident must be provided.
Alternatively, the taxpayer can inform SARS by submitting the Declaration of Cease to be a Tax Resident. The purpose of the declaration is to inform SARS of your change in tax residency that will impact the basis on which you will be subject to tax in SA and how your income tax returns will be assessed in the future.
As non-residents are still liable to pay tax on receipts and accruals from a South African source, regardless of their tax residency status, they will still have to submit their SA tax returns where applicable.