With more and more people formally emigrating from South Africa, many because they have been advised that emigration automatically terminates one’s tax residency in South Africa, it is worthwhile revisiting how one ceases to be tax resident in South Africa and the South African tax obligations of the termination of South African tax residency.
An individual is tax resident in South Africa if such person is either ‘ordinarily resident’ in the Republic; or meets the requirements of the physical presence test and is not deemed to be exclusively a resident of another country for the purposes of the application of any tax treaty.
Emigration in itself does not cause an individual to no longer be tax resident in South Africa. Emigration can be an indication that a person is no longer ordinarily resident in South Africa because they have made another country their home, however, there are many other factors that need to be assessed in order to determine whether a person’s South African tax residency has terminated. Emigration is only one such factor.
The concept of “ordinary residence” is not defined in the Act and the determination of whether or not an individual is ordinarily resident for tax purposes is a factual one, which must be undertaken on a case-by-case basis.
A number of factors must be taken into account to make such a determination.
An Interpretation Note issued by SARS sets out the factors that must be taken into account to determine whether an individual is ordinarily resident for tax purposes in South Africa, namely:
- An intention to be ordinarily resident in South Africa
- The person’s most fixed and settled place of residence
- The person’s most habitual abode, that is, the place where that person stays most often, and his or her present habits and mode of life
- The place of business and personal interests of the natural person and his/her family
- Employment and economic factors
- The status of the individual in the Republic and in other countries, for example, whether he/she is an immigrant and what the work periods and conditions are
- The location of the natural person’s belongings
- The natural person’s nationality
- Family and social relations (for example, schools, places of worship and sports or social clubs)
- Political, cultural or other activities
- That natural person’s application for permanent residence or citizenship
- Periods abroad, the purpose and nature of visits
- Frequency of and the reason for visits
One’s circumstances as a whole must be examined, taking into account the year of assessment concerned and one’s mode of life before and after.
It is possible to be resident in South Africa based on the ordinary residence test, even if one was not physically present in the Republic during the relevant year of assessment. A physical presence at all times is not a prerequisite to being ordinarily resident in the Republic. The purpose, nature and intention of a natural person’s absence must be established and considered as part of all the facts in determining whether that person is ordinarily resident.
It is furthermore possible to have terminated one’s tax residency whilst still meeting the “ordinary residence” test. This is due to the fact that a person who is deemed to be exclusively a resident of another country for the purposes of the application of any tax treaty, is not tax resident in South Africa.
Tax implications of ceasing to be a South African tax resident
A person that ceases to be tax resident in South Africa is treated as having disposed of each of their (worldwide) assets, other than immovable property in South Africa, on the date immediately before the day on which that person ceases to be a (tax) resident, for an amount equal to the market value of the asset on that date.
This will result in Capital Gains Tax being payable on these assets (as if they had been disposed of).
South African tax obligations upon terminating tax residency
The year of assessment for the person who is no longer tax resident in South Africa is deemed to have ended on the date immediately before the day on which that person ceases to be a resident. This creates an obligation for the taxpayer to submit their second provisional tax return (and payment) on the day before they cease to be tax resident in South Africa.
South African tax obligations subsequent to terminating tax residency
Even if one is no longer tax resident in South Africa, one could still have tax obligations in South Africa. A non-resident is still subject to tax in South Africa on income that has its source (or deemed source) in South Africa.
For example, if Mr A and his family leave South Africa to move to Australia permanently and he retains his property in Cape Town that he rents out to tourists, he will still be required to submit a tax return and pay tax in South Africa on the rental income earned from the property in Cape Town.
Non-residents also remain subject to Estate Duty in South Africa on assets in South Africa. Therefore, if Mr A passes away and he still owns the property in Cape Town; if the value of the property exceeds R3.5 million, his estate will have an Estate Duty liability in South Africa.
If there is any aspect of this article where and should you require further clarification, please give us a call and we will gladly assist.
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