Page 184 - SAIT Compendium 2016 Volume2

IN 3 Income Tax acT: InTeRPReTaTIon noTes IN 4 (4)
4. Further references
(1990) 29 Income Tax Reporter 195 ‘Ordinarily Resident’ and ‘Carrying on Business’
Silke on South African Income Tax, paragraph 14.41
Meyerowitz on Income Tax, paragraph 5.16
Butterworths: Income Tax Practice Manual ‘Ordinarily Resident’, page A 568 (1)
IR20 Residents and non-residents: Liability to tax in the United Kingdom (http://www.inlandrevenue.gov.uk/pdfs/ir20/ htm)
INTERPRETATION NOTE: NO. 4 (Issue 4)
DATE: ACT: SECTION: SUBJECT:
Preamble
12 March 2014
INCOME TAX ACT 58 OF 1962
SECTION 1(1)
RESIDENT: DEFINITION IN RELATION TO A NATURAL PERSON – PHYSICAL PRESENCE TEST
In this Note unless the context indicates otherwise –
• ‘section’ means a section of the Act;
• ‘the Act’ means the Income Tax Act 58 of 1962; and
• any word or expression bears the meaning ascribed to it in the Act.
1. Purpose
This Note explains the requirements of the physical presence test, with which a natural person, who is not at any time ordinarily resident in the Republic of South Africa during the relevant year of assessment, must comply before that person will be a ‘resident’ as de ned in section 1(1).
2. Background
South Africa’s tax system has been residence-based since years of assessment commencing on or after 1 January 2001. For a natural person, this was the commencement of the 2002 year of assessment, that is, 1 March 2001. Persons who are ‘resident’ in the Republic are taxed on their worldwide income, subject to certain exclusions. Persons who are not resident are only taxed on their income from a source within the Republic. A natural person can become a resident for income tax purposes by –
• being ordinarily resident in the Republic (1);* or
• complying with all the requirements of the physical presence test.†
This Note focuses solely on the application of the physical presence test. For more information on the concept of ‘ordinarily resident’, see Interpretation Note No. 3 dated 4 February 2002 ‘Resident: De nition in Relation to a Natural Person – Ordinarily Resident’.
3. The law
For ease of reference the term ‘resident’, as de ned in section 1(1), is quoted in Annexure A.
4. Application of the law
The physical presence test, also known as the ‘day test’ or ‘time rule’, is based on the number of days that a natural person is physically present in the Republic. The purpose or nature of the visit is irrelevant. It must be determined annually whether all the requirements of the physical presence test have been met. Paragraph (a)(ii) of the de nition of a ‘resident’ in section 1(1) refers to a natural person who is not at any time during the relevant year of assessment ordinarily resident in the Republic. The ‘ordinarily residence’ test supersedes the physical presence test. The physical presence test is thus not applicable during any year of assessment that a person is ordinarily resident in the Republic.
4.1 Requirements
Items (aa) and (bb) of paragraph (a)(ii) of the de nition of a ‘resident’ in section 1(1) contain the requirements that a natural person must comply with before that person can be regarded as a resident for income tax purposes. The requirements refer to the number of days that a natural person must actually be present in South Africa, during a year of assessment and also during the ve years of assessment preceding the year of assessment under consideration.These requirements are that the person must be physically present in the Republic for a period or periods exceeding –
(i) 91 days in aggregate during the year of assessment under consideration;
(ii) 91 days in aggregate during each of the ve years of assessment preceding the year of assessment under consideration;
and
(iii) 915 days in aggregate during the ve preceding years of assessment.
A natural person who complies with all the requirements referred to above is a resident of the Republic, for tax purposes, for the year under consideration.
* Paragraph (a)(i) of the de nition of a ‘resident’ in section 1(1). † Paragraph (a)(ii) of the de nition of a ‘resident’ in section 1(1).
176 saIT comPendIum oF Tax LegIsLaTIon VoLume 2