Page 187 - SAIT Compendium 2016 Volume2

IN 4 (4) Income Tax acT: InTeRPReTaTIon noTes IN 4 (4)
Example 4 – When a person ceases to be a resident
Facts:
Z, a citizen of Argentina employed by a South African company, never visited South Africa before 29 June 2007 and is not ordinarily resident in the Republic. Z was physically present in the South Africa for the following periods:
Year of assessment
2008
2009
2010
2011
2012
2013
2014
Period in the Republic
29/06/2007 – 29/02/2008 01/06/2008 – 31/08/2008 01/09/2009 – 28/02/2010
01/03/2010 – 21/05/2010 08/11/2010 – 28/02/2011 01/07/2011 – 29/02/2012
29/06/2012 – 15/07/2012 29/08/2012 – 30/11/2012
01/11/2013 – 30/11/2013
Number of days in the Republic
246 92 181
82 113 244
17 94
30
Result:
(i) Z was physically present in South Africa in the 2013 year of assessment for a period exceeding 91 days (17 + 94
= 111 days).
(ii) Z was physically present for more than 91 days in each of the ve prior years of assessment (246 days in 2008;
92 days in 2009; 181 days in 2010; 195 days (82 + 113) in 2011; and 244 days in 2012).
Z was physically present for more than 915 days in aggregate during those ve preceding years of assessment (246 + 92 + 181 + 195 + 244 = 958 days).
All the requirements were therefore met for the 2013 year of assessment. Z was resident in South Africa under the physical presence test from the beginning of the 2013 year of assessment, that is, 1 March 2012. Z was physically absent from the Republic from 1 December 2012 to 31 October 2013, which is a continuous period of 335 full days. This meets the 330-day rule. Z thus ceases to be a resident from the day after the original departure from the Republic, 30 November 2012. Z is therefore not resident in the Republic from 1 December 2012.
For capital gains tax purposes, Z is deemed to have disposed of worldwide assets (other than immovable property situated in the Republic, or an interest or right in such property) for an amount equal to the market value of the assets, on the day before Z ceases to be a resident, in this case 30 November 2012. Z is also deemed to have immediately reacquired those assets at a cost equal to the market value on the day Z ceases to be resident, that is, 1 December 2012.* For more information on capital gains tax, see the Comprehensive Guide to Capital Gains Tax on the SARS website www.sars.gov.za.
If an assessment has been issued to include Z’s worldwide income for the full year of assessment, a reduced assessment could be issued in order to exclude amounts received or accrued after 1 December 2012 that are not from a source within the Republic (provided all the other requirements for a reduced assessment have been met). The reduced assessment may only be issued once proof is provided that the actual period of physical absence from South Africa met the 330-day rule. For the processes and rules relating to disputing assessments, refer to the SARS website.
Z was only physically present in South Africa for 30 days during the 2014 year of assessment. As the 91-day requirement is not met, Z is not resident in South Africa under the physical presence test for that year. It is not necessary to consider the second and third requirements, as the rst requirement was not met. As a non- resident, Z is only liable to tax in the Republic on income from a source within the Republic.†
4.5 Dual residence and tax treaties
A person’s status as a resident of a particular country depends on the domestic laws of that country. Internationally, a country’s domestic laws may provide that a person is a ‘resident’ if that person is liable to tax in that country by reason of domicile, citizenship, residence, or other factors.‡ Thus, because the domestic laws of various states use differing criteria for determining residence, a person may be a ‘resident’ of two or more states. The double taxation that could arise as a result of this is often resolved by means of a double taxation agreement or tax treaty. Tax treaties recognise that a person will only be a ‘resident’ under the treaty, if that person is resident under the domestic law of a contracting state to that treaty. In such cases, that person’s residence status under the tax treaty is determined by virtue of the various tie-breaker rules. These rules will determine which country, for the purposes of the treaty, the individual is exclusively resident of.
* Section 9H, applicable with effect from 1 April 2012.
† Z, as a non-resident, will only be subject to tax on amounts received or accrued from a South African source, in accordance with paragraph (ii) of the de nition of the term ‘gross income’ in section 1(1).
‡ The term ‘resident’, as used in this context, does not refer to a ‘resident’ as de ned in section 1(1), but to residence in the general sense, for example, where an individual actually resides.
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