Page 377 - SAIT Compendium 2016 Volume2

IN 25 (3) Income Tax acT: InTeRPReTaTIon noTes IN 25 (3)
1. Purpose
This Note explains the application of the physical presence test in the year of assessment that a natural person, who is not ordinarily resident on the Republic, dies or becomes insolvent. The implications of a double taxation agreement have not been taken into account in this Note. Issue 2 of this Note, dated 8 February 2006, is hereby replaced.
2. Background
Persons who are residents of the Republic of South Africa are subject to tax on their worldwide taxable income. A person is a ‘resident’ as de ned in section 1(1) if that person is –
• ordinarily resident in the Republic; or
• physically present in the Republic for a speci ed number of days during the relevant (current) year of assessment as
well as during each of the ve years of assessment immediately preceding the current year of assessment (the physical presence test).
This Note must also be read in conjunction with Interpretation Note No. 4 (Issue 4) dated 12 March 2014 ‘Resident: De nition in Relation to a Natural Person – Physical Presence Test’ as well as Interpretation Note No. 8 (Issue 3) dated 28 August 2013 ‘Insolvent Estates of Natural Persons’.
3. The law
For ease of reference the relevant sections of the Act are quoted in the Annexure.
4. Income tax implications
4.1 The physical presence test
There are three requirements that must be met when applying the physical presence test before a natural person is regarded as a resident in the Republic for tax purposes under paragraph (a)(ii) of the de nition of a ‘resident’ in section 1(1). The three requirements are that the person must have been physically present in the Republic for –
(i) more than 91 days in total during the current year of assessment;
(ii) more than 91 days in total in each of the ve years of assessment immediately preceding the current year of
assessment; and
(iii) more than 915 days in total during those ve immediately preceding years of assessment.
All three of these requirements must be satis ed, or the person will not be a resident for the current year of assessment. Refer to Interpretation Note No. 4 (Issue 4) for a detailed discussion on the application of the physical presence test. A person who dies or becomes insolvent will generally have a year of assessment of less than 12 months in the year of death or insolvency.
4.2 The year of assessment in which a person dies
Proviso (a) to section 66(13)(a), read with the de nition of a ‘year of assessment’ in section 1(1), provides that the year of assessment for a person who has died –
• commences on the rst day of the year of assessment (usually 1 March unless the person was born during the year); and • ends on the date of death.
The ‘more than 91 days’ requirement in the physical presence test for the year of assessment during which a person dies, is applied in the normal way, and is not scaled down to account for the year of assessment being less than 365 or 366 days. For example, a person who dies on 30 April and that person was physically present in the Republic as from 1 March, will not meet the ‘more than 91 days’ requirement during the current year of assessment because that person would have been physically present in the Republic for only 61 days (1 March to 30 April). Proviso (a) to the de nition of a ‘resident’ in section 1(1) provides that, when calculating the number of days for purposes of the physical presence test, a day includes a part of a day. A person would have been alive, and therefore physically present, in the Republic for part of the day on which that person dies, and the day of death therefore counts towards the number of days of physical presence in South Africa.
Example 1 – Death
Facts:
Y, a resident of Utopia (with which South Africa does not have an agreement for the avoidance of double taxation) is not ordinarily resident in the Republic. Y was physically present in the Republic for the following periods during the 2014 year of assessment:
a) 2 June 2013 to 19 June 2013.
b) Y arrived at Cape Town International Airport at 23:40 on 10 November 2013. c) Y passed away at 20:00 on 21 January 2014.
During the ve preceding years of assessment Y was physically present in the Republic for the following number of
days:
Year of assessment
2009 188 2011 181 2013
Number of days
155 2010 201 2012 191 916
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