Written for Property Poser
The Property Poser experts were recently asked for their guidance on the tax benefits of becoming a non-resident in the eyes of the South African Revenue Service.
A reader explains that she owns a property that, until now, has been her primary residence. She does not however mention what will happen to the property when she leaves the country – whether it will be rented out or not.
Schalk van der Merwe from Rawson Properties in Somerset West, Cape Town, says South Africa uses a residence-based tax system.
“This means that residents are, subject to certain exclusions, taxed on their worldwide income, regardless of where it was earned.”
By contrast, says Van der Merwe, non-residents are taxed on their income from a South African source.
“Foreign taxes that are proved to be payable to a foreign government may generally be credited against the local tax payable on foreign income.”
Van der Merwe says you are considered to be ordinarily resident in South Africa if it is the country to which you will naturally and as a matter of course return after being away.
“If the person is not ordinarily resident, or does not meet the requirements of the physical presence test, that person will be viewed as a non-resident.”
The physical presence test determines that you must be in SA for a pre-determined period or periods, says Van der Merwe.
“You must be present for more than 91 days in total during the year of assessment, as well as 91 days in total during each of the preceding five years of assessment.”
Alternatively, you must be resident for a period exceeding 915 days in total during those five preceding years of assessment, says Van der Merwe.
Grant Hill of Miller Bosman Le Roux Attorneys in Somerset West says the reader has not indicated why she may no longer be resident in South Africa.
“The rules are, however, of no use if the property will be generating rental income because the income will clearly have its source in SA and will be taxed accordingly.”
Hill says one other aspect that warrants consideration is that the reader currently views the property as her primary residence.
“She doesn’t mention where she is going or for how long, but these aspects will have bearing should she decide to sell the property during her absence.”
Hill says you will be treated as having been ordinarily resident for a continuous period of up to two years even if you were not living in your home during that two-year period under the following circumstances.
“Firstly, if your old home was in the process of being sold while a new primary residence was acquired or was in the process of being acquired.
“And, secondly, if your home was being built on land acquired for the purpose of erecting your primary residence.”
Two further circumstances would be if the primary residence had been accidentally rendered uninhabitable, or in the event of the owner’s death, says Hill.
“If she therefore leaves her primary residence with no intention of returning, she may not qualify for the primary residence exclusion from capital gains tax should it be sold at a later stage.”
Hill says each set of facts should be considered individually to see whether this would be the case.
To ask a property related question, visit www.propertyposer.co.za.
Full Stop Communications
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On behalf of:
Rawson Properties Helderberg and Miller Bosman Le Roux Attorneys