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IN 34
Income Tax acT: InTeRPReTaTIon noTes IN 35 (3)
service outside South Africa under a vacation or sick leave scheme operated by the employer. The vacation or sick leave scheme must be similar to vacation or sick leave schemes that generally prevail in the South African business community for persons employed in South Africa.
The potential for exemption under section 10 (1) (o) (i) of the Act does not automatically waive the liability of an employer to deduct employees’ tax in terms of the Fourth Schedule to the Act. An employer that is satis ed that the provisions of section 10 (1) (o) (i) will apply in a particular case may, however, elect not to deduct employees’ tax. Where it is found that the exemption was not applicable, the employer will be held liable for the employees’ tax not deducted as well as the concomitant interest and penalties.
4.2.5
4.3 Liability for tax on other income
The exemption provided in section 10 (1) (o) (i) does not apply in respect of any other income that a resident may earn during the tax period.
4.4 Where the section 10 (1) (o) (i) requirements are not met
The circumstances of certain of cers or crew members working on board a ship may not be suf cient in order to qualify for the exemption provided in section 10 (1) (o) (i) of the Act. It may be possible that these of cers or crew members qualify for the exemption provided under the provisions of section 10 (1) (o) (ii) of the Act. For further information, refer to Interpretation Note 16, Exemption from Income Tax: Foreign Employment Income, available on the SARS website under www.sars.gov.za.
4.5 Practical examples
See Annexure B for examples.
ANNEXURE A
Map not reproduced. Available at www.sars.gov.za/home.asp?pid=55887.
ANNEXURE B
Example 1 (transportation: salary income only)
X, who is ordinarily resident of South Africa, is employed by a shipping company. He is required, in terms of his employment contract, to be engaged on the company’s ship which is involved in the transportation of goods for reward to the Far East. X left for foreign waters on the 20 March 2002 and is expected to arrive back in South Africa on 20 December 2002. He did not return to South Africa during this period for any annual leave or sick leave. X was paid a salary of R200 000 for his services rendered outside the Republic.
X will not be liable for South African normal tax, for the 2003 year of assessment, in respect of the remuneration earned for the period spent outside the Republic which exceeds 183 days in aggregate. He meets the requirements of section 10 (1) (o) (i) (aa) of the Act.
Example 2 (mining-salary income only)
Z, works for a South African marine mining company which is involved in the exploration of natural oil within the continental shelf of South Africa. He is a crew member on board one of the company’s marine mining vessels. He is involved in the mining activities of the ship and has been outside South Africa for a continuous period of 185 days, during the 2003 year of assessment.
Despite Z being outside South Africa for more than 183 days, he does not meet the requirements of section 10 (1) (o) (i) (bb) of the Act. The exemption will only apply in respect of crew or of cers employed solely for purposes of the ‘passage’ of the ship. In addition, he did not meet the ‘outside the continental shelf’ requirement. Z will be liable for South African normal tax on his remuneration. His employer will be required to withhold employees’ tax on his behalf. Note: The exemption provided under section 10 (1) (o) (ii) of the Act may apply provided that all its requirements are present. For further information refer to Interpretation Note 16, Exemption from Income Tax: Foreign Employment Income, available on the SARS website (www.sars.gov.za).
Example 3 (transportation- salary income and interest)
T, who is ordinarily a resident of South Africa, is offered a contract to render services for a sister company on board one of the company’s cruise liners which is involved in the transportation of passengers. T left on board the cruise liner on 01 March 2003 and did not return to South Africa until 28 September 2003. She is in receipt of remuneration of R200 000 for the duration of the contract and also earns interest income of R50 000 for the tax year in question as a result of a capital sum invested in ABC Bank in South Africa.
T meets the requirements of section 10 (1) (o) (i) (aa) of the Act. She is a crew member on board a ship and is engaged in the international transportation for reward of passengers. Furthermore, she is outside the Republic for more than 183 days in aggregate, during the year of assessment. The remuneration earned in respect of her employment on board the ship will be exempt from tax. The interest income earned in South Africa will be subject to tax.
Income Tax Interpretation Note 35 (Issue 3)
Employees’ Tax: Personal Service Providers and Labour Brokers
DATE: ACT: SECTION: SUBJECT:
Preamble
31 March 2010
INCOME TAX ACT 58 OF 1962 (the Act)
Paragraphs 1, 2(1A) and 2(5) of the Fourth Schedule and section 23(k) Employees’ Tax: Personal Service Providers and Labour Brokers
Legislative references in this Note to sections are to sections of the Act and references to paragraphs are to paragraphs of the Fourth Schedule to the Act, unless the context indicates otherwise.
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