 South Africans living or working abroad can no longer avoid the long arm of SARS. Under pressure to meet its revenue quotas, the tax authority has started auditing the country’s non-compliant expatriates in earnest.
“We have been warning expatriates that this was coming and now that it’s here, the time for hiding one’s head in the sand is over,” says Jonty Leon, Legal Manager (Expatriate Tax) at Tax Consulting SA. He advises those intending to relocate to another country to follow the formal exit procedures and, most importantly, ensure their tax affairs are in order beforehand. He also advises that those that have already left permanently, should ensure that they have done so in a compliant manner, and have had themselves noted as non-resident for tax purposes. Gone, but not forgotten Whether a South African must declare their worldwide income and pay tax on it to SARS is determined by their tax residency status, not their physical location or period outside the country. Leon states, “Tax residency of South Africa is not determined solely on the amount of time spent in the Republic, this is a far more complex issue which must be technically dealt with in terms of the law.” The safest route to remove ambiguity on tax residency status is to follow the formal financial emigration process. This process is being changed and a new more stringent regime will be implemented from 1 March 2021. This may come as a shock to those who believe that, once they set foot on foreign soil, they are free from any further tax obligation to South Africa. More so for those who left the country without settling their tax debt, even if they have been gone for decades. “With stricter legislation to back its efforts and an emerging system of global financial data sharing as wind in its sails, SARS is more than capable of detecting taxpayers who historically flew under its radar,” says Leon. The warning signs According to Leon, several warning signs arose over the past year. The first was changes to the expatriate tax laws that came into effect on 1 March 2020, soon after SARS launched its dedicated Foreign Employment Unit, which is focused on South Africans working abroad. The second warning was the announcement that the current financial emigration law would be amended, which in the past has been successful in confirming with SARS and SARB one’s non-resident status. The change will inherently make it more difficult to cease tax residency and with a new and, as yet, undisclosed replacement process on the horizon, there has been a massive influx of applications to beat the deadline. The third sign was the removal of the term “wilfully” from the Tax Administration Act when dealing with non-compliance, giving SARS greater leverage to prosecute anyone claiming negligence when failing to meet their tax obligations. This is in line with the reasoning for the change in the expatriate tax legislation previously, where the rife tax non-compliance of South Africans abroad was noted during Parliamentary sessions in August 2017. Lastly, SARS has begun a two-pronged attack strategy: - Firstly, through audits calling for individual expatriates to prove they are non-residents and justify their intentions – some audits calling for proof that the taxpayer had obtained an Emigration Tax Clearance Certificate when leaving South Africa; and - Secondly, by audits on offshore income revealed through the common reporting standard (CRS). According to Leon, this comes as no surprise, as SARS is targeting those who have historically been able to “hide” assets and funds, but which will no longer be possible due to the exchange of information between jurisdictions. Options Leon says South African expatriates and those wishing to emigrate still have several options available to them. For one, they can urgently apply for financial emigration until March 2021. “National Treasury confirmed that applications submitted prior to that date will be processed under current legislation,” he says. They can also take advantage of any double tax agreement between their chosen country and South Africa. As the tax implications of such agreements vary between jurisdictions and the fact that these agreements do not apply automatically to the taxpayer, they should seek advice from an expatriate tax expert. Above all, if an expatriate is not tax compliant, they can approach SARS under the Voluntary Disclosure Programme to pay their back taxes along with interest and penalties but without prosecution. This process must also be undertaken very carefully, as specific requirements must be met. “SARS has the advantage now, so waiting to see what happens is a course of action I do not recommend,” says Leon. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa
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Taxation Laws Amendment Bill Provides Relief for South African Expats “Trapped” During Lockdown9/11/2020  Authored by: Jonty Leon, Attorney & Legal Manager for Expatriate Tax Compliance at Tax Consulting SA
On 13 October 2020, National Treasury and SARS published their responses on the Draft Taxation Laws Amendment Bill (“TLAB”), which included potential relief for South African expatriates who were unable to leave South Africa owing to the Covid-19 lockdown. This relief provided for reduced days in terms of the requirements of the foreign employment exemption, being section 10(1)(o)(ii) of the Income Tax Act, commonly known as the “expat exemption”. As this was merely a response document, which needs approval by the Minister and Parliament, the relief has not yet been confirmed. It is commonly known that SA is in dire need of tax revenue, and this proposal thus came as a welcome surprise, with many anxious to see whether this would pass into law and provide much needed relief for expats. One Step Closer On 28 October 2020, an updated TLAB was released following the response document by Treasury and SARS, which included the proposed relief for expats. As the proposals were contained in the TLAB, it takes a step in the right direction for the relief to be approved in Parliament and promulgated into law, which ordinarily would materialize in December, if prior years are anything to go by. At this point, it would be out of the ordinary for the proposal to not be passed and thus this is positive news for South African expats who have been locked down in SA and unable to meet the standard days out of SA to claim the exemption. One word of caution would be to not count one’s chickens before they have hatched – although moving in the right direction on this proposal, a flailing economy could give rise to an unexpected surprise. The Relief The foreign employment exemption standard requirements are simply: - Income must emanate from foreign employment (independent contractors do not qualify); - The taxpayer must spend more than 183 days outside South Africa during a twelve-month period; and - More than 60 of those days must be continuous. If these requirements are all met, R1.25mil of foreign earned income can be exempted from tax in South Africa – the portion above this, simply put, would remain taxable in SA in terms of the standard personal income tax rates. The proposed relief reduces the total number of days required to be outside of SA by 66. Thus, the only change to the exemption requirements is that the taxpayer would need to be outside of SA for more than 117 days rather than 183 days. Be Cautious – Approach SARS with Clean Hands Many South African expats will breathe a sigh of relief, if this proposal is signed into law. The issue arises though that many are of the opinion that if they meet the exemption requirements, they are automatically exempt from tax in SA. This is incorrect – one must file a tax return to SARS, declaring their foreign income and claiming the exemption for that income from tax of up to R1.25mil. Without doing this, the foreign income is theoretically not exempted from tax in SA, unless you have already formalised your non-tax residency using the Financial Emigration process or by applying Double Tax Treaty relief. Furthermore, dealing with thousands of expatriate tax returns yearly, we note that in most cases taxpayers have been historically non-compliant, as they have not declared their foreign income. This historic non-compliance must be fixed, especially where a taxpayer only now decides to declare income correctly, and preferably with a tax professional at your side to mitigate any tax exposures. The crux of the matter is that SARS is under massive pressure to extract as much tax revenue as possible from a dwindling tax base. Non-compliant taxpayers make it easy for SARS not only to raise an assessment requiring tax to be paid, but also to levy penalties and interest on previous non-declaration. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@atthatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook:Tax Consulting South Africa  Authored by: Thomas Lobban, Jean Du Toit & Jonty Leon from Tax Consulting SA
This week, on 26 November 2019, the National Assembly passed the latest tax bills, which is set to be promulgated by the President after it has been passed by the National Council of Provinces. On the face of it, some concessions have been made for individual taxpayers, but these offer cold comfort in the bigger scheme. Proposed Amendments Before we get to the truly profound implications, it is important to note the following amendments:
At first glance, it appears that there are no profound amendments to the Income Tax Act or the Tax Administration Act that would raid the pockets of taxpayers, to generate additional revenue. This is peculiar, since the prevailing budget deficit is a massive elephant in a room with grim economic prospects and a junk credit rating. However, taxpayers must not be fooled. In the current economic climate and with SARS so far behind on collection, it is unlikely that the 2019 legislative cycle would not have been put to good use the drum up some more money. Government is smart enough to understand that big changes cause controversy, as we have seen with the VAT rate increase or the amendment to the exemption on foreign employment income. With no such amendments, were taxpayers truly given a tax break in light of the current economic landscape? No Change Means More Revenue In truth, the biggest change by far is not a change at all, nor is it actually found in the Income Tax Act or Tax Administration Act. The Rates and Monetary Amounts and Amendment of Revenue Laws Act, 2019 proposes no amendment to the tax brackets which prescribe the rates of tax applicable to individual taxpayers. In a country with a relatively high inflation rate, this is a problem, since the salaries of employees generally increase in line with inflation. Where the tax brackets do not increase correspondingly, this results in so-called “bracket creep”. In real terms, while this means that individuals are technically earning more, they are actually taking home less pay each month as compared to the previous year. In fact, in many cases taxpayers may be pushed into a higher tax bracket. The upshot is the taxpayer’s pay increase is wiped out by additional taxes. It should also be mentioned that this is the second year in a row that the tax brackets have not been increased, which means that taxpayers will need to further reduce their cost of living for another year, in order to make ends meet. While this will not necessarily affect lower income earners, it will certainly have a significant impact on the already overburdened taxpayers in the middle- and higher-income brackets. This also affects those who will be withdrawing lump sum benefits from their pension interest. In this case, the special tax rates applicable to these amounts also remain unchanged. This means that these persons will be forced to enter into retirement with less cash available to defray their cost of living – an unfortunate consequence of bracket creep. Say Good-Bye to South Africa’s High Earners The long-term effect of these changes (or lack thereof) can only realistically be determined over time. This is an effective measure to generate revenue over the short term, but the question must be asked; how much financial constraint taxpayers are willing take before it becomes unsustainable and individuals simply decide to leave South Africa? We have already seen a massive jump in South Africans deciding to leave the tax net by formally noting their non-resident status by financially emigrating from South Africa. As it stands, National Treasury is already relying heavily on the higher earning segment of the individual tax base and measures like these forces the hand of taxpayers who are already contemplating their departure. Ultimately, we lose important taxpayers and their descendants to the tax base permanently, which leads to less revenue for government. Cunning as it may be, it would seem that government’s band aid is a temporary fix that will exacerbate a far larger problem. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa  Written by: Jonty Leon, Financial Emigration Legal Manager
SARS Views – Not a Law Unto Itself It is an unfortunate sight when tax advisors from varied backgrounds, but more so those who do not have a legal background, turn a blind eye to South African tax legislation and rather submit to the ever-dominating “views” of SARS. Arguing with such an advisor who uses “SARS said…” or “SARS’ interpretation note…” is like screaming into a black hole. Unlike for practicing attorneys, who are officers of the Court and must serve the Court to come to the correct decision; the tax practitioner plays a different role. SARS’ views are unavoidably one-sided, and the ethically correct space for a tax practitioner to operate is to provide balance to the equation, whilst always ensuring full compliance. Legally Blind Tax Advisors When a tax advisor only makes use of the views, or releases of SARS to determine what is best in one’s situation, which occurs more often than we like to believe; it generally ends with the taxpayer inadvertently and unnecessarily compromising their position, in favour of SARS. A true tax advisor must read the law. If this is not the starting point of their advice, there is already a problem and the advisor sets the client on a trajectory of paying too much tax or selling a tax service which is not really needed. With the correct interpretation of the law, the tax advisor has a chance. Without it, SARS reigns supreme, swinging its sceptre in favour of its own agenda. The issue with a tax advisor taking the words of SARS as gospel, is that SARS is a litigating party to any dispute with a taxpayer. It is therefore inconceivable that SARS’ views on legislation, “must be correct”. SARS has one job, to collect as much revenue from the taxpayer as possible, and not to provide ways for the taxpayer to reduce their liability. For some reason, tax advisors seem to forget this and play straight into the field of SARS’ collection priorities. The Full Might of the Letter of the Law Our Constitutional Court has clearly stated that SARS’ view cannot be relied upon, and specifically refers to SARS’ Interpretation Notes. In the ConCourt case Marshall and Others v Commission for the South Africa Revenue Service, the Court stated: “Why should a unilateral practice of one part of the executive arm of government play a role in the determination of the reasonable meaning to be given to a statutory provision?...In those circumstances it is difficult to see what advantage evidence of the unilateral practice will have for the objective and independent interpretation by the courts of the meaning of legislation, in accordance with constitutionally compliant precepts. It is best avoided.’ (Emphasis added) This Judgment is damning against SARS, and goes on to state, “Deference to an administrative body’s own interpretation of the meaning of a statute which it is responsible for implementing should be avoided, particularly when the administrative body is party to the litigation.” The Legally Literate Tax Advisor With the law in hand, a tax advisor that has been to Tax Court is an invaluable weapon. Having stood toe-to-toe with SARS on many occasions, and having insight into their strengths and weaknesses but more importantly understanding the legal obligations to win a case, becomes the only reliable stronghold to a daunting fight against the great collector, SARS. In terms of section 102 of the Tax Administration Act No. 28 of 2011, the onus of proving, “that an amount, transaction, event or item is exempt or otherwise not taxable”, falls on the taxpayer. Thus, the taxpayer bears the onus of proving that they are “innocent” on a balance of probabilities. Our Court’s in a decision by the Special Court in ITC 43, held that, “in the case of all things being equal we are bound to decide in favour of the Commissioner.” This means that the starting point for any tax planning or compliance advice, including SARS disputes, should be whether the taxpayer has passed the burden of evidential proof. The Law will Seal the Deal It is so important to have a legally literate tax advisor with tax court experience, who is capable and willing to use all available legal weaponry in their arsenal to advance your case. More importantly to ensure that the advice given to you prior to you even needing to step foot in a Court, is holistic and grounded in law, not on SARS’ opportunistic interpretation of the law. The next time you get an audit finding or your tax advisor hammers on “SARS will say this” and “SARS will say that”, be mindful of what the Constitutional Court has said about the views of SARS, that they ‘best be avoided’. A Tax Advisor is there to serve the taxpayer’s interests, not the interests of SARS. ENDS MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa |
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