This year has been a journey into unchartered waters for us all, and a particularly tense time as far as South African expatriates are concerned. For many expats, more and more questions have been left unanswered as this filing season, and the current tax year begins to draw to a close.
One thing, however, is evident – SARS will specifically be looking at expatriate tax compliance as a key aspect of compliance enforcement from this year onwards. This has led to much introspection for taxpayers, with many now considering whether they have been compliant in their affairs and if the tax position they are taking is correct.
This is an especially relevant concern for expatriates abroad who –
- intend on permanently returning to South Africa at some point within the foreseeable future;
- do not intend to return to South Africa but cannot objectively prove this; or
- who are completely uncertain as to whether they will return.
Some of these expatriates may have already been –
- incorrectly relying on the application of a DTA;
- incorrectly relying on the foreign employment income exemption provided for in the South African Income Tax Act (now limited to R1,25 million); or
- simply not disclosing their foreign income in their returns to SARS.
Easy Answers, with a Pinch of Salt
With much uncertainty abound, many taxpayers have been heading to SARS for clarity on where they stand. For example, a common question asked is whether a taxpayer would be considered a resident or non-resident for tax purposes, and how this will affect their filing position.
Something that has become abundantly clear in recent days, however, is that this is generally best avoided. This is also a legitimate cause for concern, given that the answers provided to these taxpayers has ranged from the absurd to downright reckless.
In 2018, the Constitutional Court in Marshall NO v Commissioner for SARS stated, with reference to a taxpayer’s reliance on SARS’ unilateral interpretation of South Africa’s tax laws, that doing so “is best avoided”. This is the case for many reasons, not the least of which being that the role of SARS is to collect tax revenue, not to help taxpayers avoid tax liability.
Beware of Half-Baked Advice
Aside from SARS, another avenue available to taxpayers is to seek advice from a tax practitioner. This is without a doubt, the most appropriate route to follow to get the answers you seek, regarding remaining (or becoming) compliant with your tax affairs.
However, one should be weary of one-size-fits all approaches or off-the-cuff advice that seems too good to be true. The simple fact of the matter is that not every player on the field will have their eye on the ball with regard to expatriate tax compliance or SARS’ practices in this regard.
The truth of the matter is that the determination of one’s tax residency is an exhaustive, fact-driven process which involves the consideration of various factors in relation to the taxpayer concerned, including whether this should be determined solely with reference to South Africa’s domestic tax laws or by correctly applying the provisions of a DTA. In most cases, this is simply not correctly done.
This means that, ideally, one should look to a consulting firm that has an in-house legal component, in order to ensure that the advice provided is in view of a proper interpretation of the laws concerned. An incorrect interpretation of the law can lead to very damaging consequences for a taxpayer, especially where this concerns their tax residency, or the application of a DTA in claiming tax relief.
Distilling Your Tax Position
Filing season for the year of assessment ending February 2020 runs from 01 September – 16 November 2020 for most taxpayers. This includes South African expatriates who, whether they know it yet or not, will be required to submit an income tax return with SARS.
Details such as whether one is an employee or an independent contractor, for example, may completely erode one’s eligibility for the foreign employment income exemption and in which case a DTA or formalisation of the termination of their tax residency in South Africa may be their saving grace. The alternative to this is a potential shock for the taxpayer when SARS comes knocking.
It needs to be known that foreign income earned by a South African resident expatriate is indeed taxable in South Africa, and leaving these amounts off one’s return is simply not correct – in fact, this is a prime example of non-compliance that (when found by SARS) may very well open a proverbial Pandora’s box for the taxpayer concerned.
Out of the Frying Pan
For taxpayer’s that are at risk of incurring tax liability in South Africa, in respect of their foreign income, now is the time to have those difficult discussions needed to ensure that they remain tax compliant. If you have tax questions needing answers, it is important to grill someone sooner rather than later.
Further, for taxpayers who foresee that they will incur tax liability in South Africa for this current year of assessment, taking action now, ahead of next year’s return, is not just highly recommended but sometimes absolutely necessary where action is needed to mitigate their South African tax liability.
Expatriate tax has been one of the more contentious issues in recent memory and will become ever-more so in the days to come. What this boils down to is that South Africans abroad need to make sure that they have the correct advisor to assist them in their circumstances, and take the correct tax position based on a proper interpretation of the law.