Taxpayers: Residents vs Non-Residents

by Shantel Nel


Tax

The classification of a taxpayer as either a resident or a non-resident is crucial!

The definition of 'gross income' is different depending on whether it is applied from the perspective of a resident or a non-resident.

A South African resident is taxed on any income received, whereas a non-resident is taxed if the income source is from South Africa. A South African resident will, for example, be taxed on income earned in South Africa and abroad, while a non-South African resident will only be taxed in South Africa on income from a South African source (such as interest on an investment held in South Africa).

A “resident” is defined in the Income Tax Act as follows:

- A natural person who is

  • ordinarily resident in the Republic; or
  • not at any time during the relevant year of assessment ordinarily resident in the Republic, if that person was physically present in the Republic 


    1. for a period or periods exceeding 91 days in aggregate during the relevant year of assessment, as well as for a period or periods exceeding 91 days in aggregate during each of the five years of assessment preceding such year of assessment; and for a period or periods exceeding 915 days in aggregate during those five preceding years of assessment, in which case that person will be a resident with effect from the first day of that relevant year of assessment: Provided that—
    2. a day shall include a part of a day, but shall not include any day that a person is in transit through the Republic between two places outside the Republic and that person does not formally enter the Republic through a “port of entry” as contemplated in section 9 (1) of the Immigration Act, 2002 (Act No. 13 of 2002), or at any other place as may be permitted by the Director General of the Department of Home Affairs or the Minister of Home Affairs in terms of that Act; and
    3. where a person who is a resident in terms of this subparagraph is physically outside the Republic for a continuous period of at least 330 full days immediately after the day on which such person ceases to be physically present in the Republic, such person shall be deemed not to have been a resident from the day on which such person so ceased to be physically present in the Republic;

A “non-resident”:

 

In terms of the definition of “resident”, there are two tests that can be applied to establish whether a natural person is a resident of South Africa for tax purposes or not:

  • The ordinarily resident test; and
  • The physical presence test.

If either of these tests is positive, then the person is a resident (it is not necessary for both tests to apply).

The term “ordinarily resident” is not defined in the Act and the interpretation given by the courts must be followed to establish the accepted meaning for income tax purposes.

Let's look at the following cases to understand what is meant by the element as established in Tax Court:

1) Ordinarily resident test:

 

A natural person who became ordinarily resident, will be a resident from a specific date - not for the full year of assessment in which he becomes ordinarily resident.

SARS published Interpretation Note 3 (February 2002) in which SARS lists requirements that must be present to ordinarily reside in a country. It also determines that a natural person who emigrates from South Africa to another country will cease to be a resident from the date that the person emigrates.

2) Physical presence test:

If a person is not ordinarily resident in South Africa, the second test is to determine whether the person spends the requisite amount of time in South Africa to be regarded as a “resident”.

  • 91 days in total during the current year of assessment
  • 91 days in total during each of the previous five years of assessment; and
  • 915 or more days in South Africa during the preceding five years of assessment.

Each of the three criteria must be met in order to be deemed a resident of South Africa. If a person remains outside South Africa for a continuous period of at least 330 days, the person will cease to be a South-African resident the moment the person leaves South Africa.

If you are planning to leave South-Africa, make sure that you understand the importance of the above criteria.

To be put in touch with a Destinata Accountant, please contact services@wealthmastersclub.com.




 
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