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Comments on the 2017 Draft Taxation Laws Amendment Bill (TLAB) and the 2017 Draft Tax Administration Laws Amendment Bill (TALAB) which were published by National Treasury earlier this month, is due by the 18th of August.

One of the more controversial changes to be made to taxation laws is the foreign employment income tax exemption in respect of South African residents, which will be removed from 1 March 2019.  This will affect thousands of South African residents who work outside of the country and currently only have to pay the tax applicable in their host country, on condition that they work a total of at least 184 days outside of South Africa, of which 61 days must be continuous.

If the Act comes into force, this exemption will fall away and and residents may be taxed on their foreign income, less the tax they pay in their host country.

However, there seems to be some confusion about the definition of the term “resident”.

According to SARS, under South African law there are different types of residents, for example a resident defined by the Income Tax Act, 1962 in terms of the so-called “physical presence test” and an ordinary resident defined in terms of South African common law.

 Any individual who is ordinarily resident (common law concept) in South Africa during the year of assessment or, failing which, meets all three requirements of the physical presence test, will be regarded as a resident for tax purposes.
An individual will be considered to be ordinarily resident in South Africa, if South Africa is the country to which that individual will naturally and as a matter of course return after his or her wanderings. It could be described as that individual’s usual or principal residence, or his or her real home. If an individual is not ordinarily resident in South Africa, he or she may still meet the requirements of the physical presence test and will be deemed to be a resident for tax purposes.
To meet the requirements of the physical presence test, that individual must be physically present in South Africa for a period or periods exceeding –
  • 91 days in total during the year of assessment under consideration;
  • 91 days in total during each of the five years of assessment preceding the year of assessment under consideration; and
  • 915 days in total during those five preceding years of assessment.
An individual who fails to meet any one of these three requirements will not satisfy the physical presence test. In addition, any individual who meets the physical presence test, but is outside South Africa for a continuous period of at least 330 full days, will not be regarded as a resident from the day on which that individual ceased to be physically present.
If the individual is neither ordinarily resident, nor meets the requirements of the physical presence test, that individual will be regarded as a non-resident for tax purposes. This means that individual will be subject to tax only on income that has its source in South Africa, for example, interest earned from a South African Bank; rental income earned from a property in South Africa; and services rendered in South Africa.

 

The draft legislation and the draft explanatory memorandum containing a comprehensive description of the draft amendments can be found on the National Treasury (www.treasury.gov.za) and SARS (www.sars.gov.za) websites.

Forward written comments to Nombasa Langeni at: Nombasa.Langeni@treasury.gov.za and Adele Collins at acollins@sars.gov.za by close of business on 18 August 2017.