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The South African Revenue Service Has Increased The Tax Return Threshold

SARS commissioner Edward Kieswetter presented his plans for the 2019 tax season on Tuesday morning (4 June), including the announcement that taxpayers earning below R500,000 are now no longer required to submit returns.

This is an increase from the previous threshold of R350,000. However, SARS said that taxpayers still need to meet the following criteria:

  • Your total employment income for the year before tax is not more than R500,000;
  • You only receive employment income from one employer for the full tax year;
  • You have no other form of income, such as car allowance, business income, rental income, taxable interest or income from another job; and
  • You don’t have any additional allowable tax related deductions to claim, such as medical expenses, retirement annuity contributions and travel expenses.

Kieswetter said that the taxman would be especially hard on those that miss their payment deadlines.

“We continue to encourage taxpayers to convert to online filing. This makes the submission of returns simpler and convenient but also facilitates our overall objective of improving voluntary compliance”.

South African taxpayers should beware of simply ignoring their normal tax filing obligations due to the recent tax threshold change, according to North West University professor Herman Viviers.

“People should be very wary not simply ignore filing their normal tax returns as there is always the possibility of getting a tax refund due to additional tax deductions and/or tax credits only allowed upon assessment,” Viviers said.

He added that people should also take into account their retirement annuity contributions and medical schemes when considering filing their tax return, as they will need to declare these to claim back tax on these payments.

“Individuals will lose out on these deductions and tax credits if they do not submit their tax returns,” Viviers said.

He added that if people are uncertain about whether to submit their return, they should consult with a registered tax practioner to determine if they are compliant with the Tax Administration Act.

The tax season will officially start on 1 July for eFiling, and 1 August for other types of filing. Submissions need to be in by 31 October for walk-ins, and 4 December for online filing. For more info about personal income tax, visit the SARS website here, and to register for eFiling, click here.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2], [3]. Image sources: [1], [2].

Proposed Changes to South Africa’s Expat Tax Legislation

The South African government is making a move towards changing its tax on remuneration earned outside South Africa – which could see some expats pay as much as 45% on earnings outside R1 million.

According to Tax Consulting SA, National Treasury has invited key stakeholders to a workshop in March 2019 to address concerns around the planned regulations, which opens up the way for possible tweaking and changes ahead of the planned implementation date of March 2020.

Industry experts believe that the changes are a certainty, even if the draft laws are changed in some way before implementation – and this has some expats worried, with confusion persisting over who the new laws will affect, and how.

Current laws

Currently, South Africans who are earning income abroad are assessed in terms of residency.

In terms of section 10(1)(o)(ii) of the Income Tax Act, if you are working overseas and do not meet the physical presence requirements to be an ordinary resident in South Africa, you are exempt from tax on any foreign income.

To qualify for this exemption, an employee needs to have spent more than 183 full days (including a continuous period of more than 60 full days) outside of the country working, in any 12-month period.

If this requirement isn’t met, then the employee is taxed on worldwide income.

Proposed changes

Originally, the draft regulations proposed the complete repeal of section 10(1)(o)(ii) of the Income Tax Act – the section that deals directly with taxation on foreign remuneration.

Under these conditions, all foreign income would have been taxed by SARS, and citizens would have to claim a credit against South African tax payable for any foreign taxes paid on that foreign income.

The draft regulations were later softened to not be a complete repeal, but that section 10(1)(0)(ii) be changed so that only the first R1 million of foreign remuneration will remain exempt from tax in SA – even if an individual meets the requirements of exemption.

One of the main reasons given for the changes is to curb situations of double non-taxation – being situations in which an individual’s employment income is not subject to tax in either South Africa or in the foreign country where the services are rendered.

Who does it affect?

The proposed changes will affect any South African employees who are earning an income overseas, making over R1 million in the year of assessment.

It will also impact companies that send employees overseas for work, who will have to deal with the new tax implications.

South Africans who have permanently left the country, who have not settled their tax affairs (through financial emigration) may also be subject to the changes, depending on their individual circumstances.

Young people, or anyone who is travelling and working abroad who qualify for exemption under section 10(1)(o)(ii) will remain exempt, provided they earn less than R1 million in the year.

Non-residents

The tax changes could also impact people who are permanently living abroad, who currently qualify for exemption based on section 10(1)(o)(ii). These South Africans are typically not ordinarily resident in South Africa, but may have assets in the country, which could impact how SARS sees their tax affairs.

SARS has a set guideline – called the physical presence test – to determine whether a South African is resident, based on physical presence in the country.

This is for a period or periods exceeding:

91 days in total during the year of assessment under consideration;
91 days in total during each of the five years of assessment preceding the year of assessment under consideration; and
915 days in total during those five preceding years of assessment.
“An individual who fails to meet any one of these three requirements will not satisfy the physical presence test. In addition, any individual who meets the physical presence test, but is outside South Africa for a continuous period of at least 330 full days, will not be regarded as a resident from the day on which that individual ceased to be physically present,” SARS said.

If an individual passes the physical presence test, they will be taxed on their worldwide income in South Africa.

What if you are living in two countries?

In situations where South Africans are split between two nations – working overseas for extended periods of time, but remaining an ordinary resident in South Africa – SARS has double taxation agreements (DTA) with certain countries to determine who has exclusive rights to your taxes.

“South Africa has DTAs with a number of other countries with a view to, amongst other things; prevent double taxation of income accruing to South African taxpayers from foreign sources, or of income accruing to foreign taxpayers from South African sources,” SARS said.

In an interview after the draft regulations were published, Sable International, explained that DTA has different checks and balances, but typically boils down to where most of your assets are (like a permanent home) and where your family is. However, this is subject to a more in-depth investigation from SARS.

It is worth noting, however, that for ordinary residents, all income sources within South Africa will still be taxable in South Africa.

The coming laws only apply to your foreign income – normal tax is paid on all South African assets and capital gains made on those assets in the country.

South Africans who have permanently left the country, who still have assets in the country, are still taxed on those assets, with the only way to divorce being through financial emigration.

Is financial emigration necessary?

According to Sable International, financial emigration – being the legal process of cutting all tax ties to South Africa – may not be necessary to avoid the expat tax, provided you meet the right requirements.

If you are a non-resident (South African living abroad) and can prove to SARS you are ordinarily resident in the country you’re living in, then the tax should not apply.

If you are in a dual-residency situation, SARS may have a DTA with the country you’re living in that may make you exempt.

However, this is specific to each individual situation, with no real general exemption that applies to all expats outside the section 10(1)(0)(ii) limits.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: rawpixel [1], [2].