On Thursday 3 June 2021, SARS issued its guidance on what ceasing South African tax residency involves, by posting its “Cease to be a Resident” webpage. This is a welcome initiative that may clear up any misconceptions and dispel any advice peddled in the market that this is simply a matter of ticking boxes.
How do you declare it to SARS?
The webpage states that there are two channels –
- The first is to declare this on your tax return (ITR12), which makes provision for you to confirm cessation of your residency and the relevant date when this occurred. This will trigger a request for supporting documentation to substantiate your position; and
- You can submit a “Declaration of Cease to be a Tax Resident” to SARS by email. This must also be accompanied by supporting documentation, which includes a signed letter of declaration, a motivational letter explaining your circumstances and your passport or travel diary.
Critically, what this now confirms is that SARS will not simply accept your declaration. It will now look at if you correctly applied the test, and more importantly, if your facts support your position. The webpage confirms that SARS will decline your declaration if you do not meet the criteria or cannot provide supporting relevant material.
The guidance issued by SARS now confirms the best approach is a prudent one, which is to get an independent opinion from a tax practitioner that understands the law, which confirms you objectively meet the requirements.
This issue is one that many South Africans have grappled with over the last three years. Ceasing tax residency has gained more pertinence in light of the “expat tax” that took effect from 1 March 2020, as well as the imposition of a three-year lock up of retirement funds for South Africans leaving the country, effective from 1 March 2021.
This latest development should put beyond any doubt the fact that SARS is aggressively targeting South African expatriates. This segment of the tax base is important for SARS, and they will not let you leave the tax net without being satisfied that you are allowed to do so and that you do it correctly.
What should you do if you have received incorrect advice?
It is important to stress that ceasing residency triggers a cascade of tax implications. If you suspect that your exit may not have been perfect, it is recommended that you do a full tax diagnostic. This should at a minimum look at (1) if you applied the tests correctly; (2) did you use the right exit date; (3) is your exit tax calculation accurate and (4) do you have the relevant material to support your position?
It is critical that you conduct this exercise and make the necessary corrections before SARS uncovers them. Incorrectly filing as a non-resident taxpayer normally results in a considerable tax exposure, including penalties and interest. But you may have a small window of opportunity to still file a voluntary disclosure application, which provides amnesty from criminal prosecution and understatement penalties.