(It must be mentioned here that many people are under the mistaken impression that if they are outside of the country for a certain number of days per year they will not be tax resident in South Africa. This is incorrect and if necessary, advice should be taken in this regard.)
Some of the criteria that are used to establish the location where someone is ordinarily resident are: the place of their most fixed and settled place of residence; the place of business and personal interests; the location of personal belongings; whether an application has been made for permanent residency elsewhere etc.
If a person has formally emigrated from South Africa it is likely that he has decided to make another country his real home - and therefore that he will cease to be tax resident in South Africa at some point. When exactly he will cease to be resident will depend on the facts (ie it could be that the date that he has purchased the new family home, or the date that he has been granted a residence permit in his new country of residence etc). It must be borne in mind that the taxpayer will need to be able to substantiate the date of termination of residency and that documentary evidence of this fact will be required.
In order to formally emigrate from South Africa the emigrant is required to obtain a tax clearance certificate from the South African Revenue Service (SARS), which must be submitted to the Reserve Bank. It is often assumed that by receiving a tax clearance certificate, SARS has taken note of the emigration and that that is the end of the emigrant's obligations as a South African tax resident. This is certainly not the case.
For example, one of the major tax implications of ceasing to be a South African tax resident is that the taxpayer is deemed to have disposed of all capital assets, other than those listed below, for Capital Gains Tax purposes:
• Immovable property in South Africa.
• Shares in a company where more than 80% of the value of the shares is attributable to immovable property in South Africa.
• Certain shares obtained as a result of the emigrant's employment.
Therefore should the emigrant own shares in a private company that is not a property-owing company for example, he will be deemed to have disposed of those shares for their market value as at the date that he ceases to be a South African tax resident, which will trigger a capital gain in his hands. The same principle applies to his listed shares held on the JSE Limited.
A person who is not tax resident in South Africa remains liable for tax on South African sourced income (subject of course to the provisions of Double Taxation Agreements).
Furthermore, if the emigrant is the beneficiary of a discretionary trust in South Africa, the trust may be prevented from distributing capital gains to him for tax purposes to benefit from the lower tax rate in the hands of the beneficiary (rather than being taxed in the trust).
A further aspect to bear in mind is that ceasing to be a tax resident does not necessarily do away with the obligation to submit provisional tax returns.
Ceasing to be a South African tax resident is therefore a tax event that needs to be carefully managed in order to ensure that non-compliance with the Income Tax Act does not result in unnecessary and onerous penalties for the emigrant.
