SARS tightening controls for those who want to leave SA's tax net

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SARS has issued guidelines for ceasing to be a tax resident.
SARS has issued guidelines for ceasing to be a tax resident.
  • SARS has issued a guideline for taxpayers who want to cease having South African tax residence.
  • Taxpayers need to provide the relevant documentation, or risk having their declarations rejected by SARS.
  • Incorrectly filing as a non-resident taxpayer may result in tax exposure, including penalties and interest.

The South African Revenue Service (SARS) has issued a guideline for taxpayers who want to cease having South African tax residence this upcoming tax season, and it's not a simple tick box exercise, according to tax experts.

If a person ceases being a tax resident in South Africa, the person is no longer taxed in South Africa on their worldwide income, but only on income sourced from South Africa.

According to SARS' website, to cease being a tax resident, you need to declare it on your tax return (ITR12). SARS will then provide a request for relevant documentation to substantiate your declaration.

Alternatively, taxpayers can submit a declaration that they "cease to be a tax resident" to SARS by email. This must also be accompanied by supporting documentation such as a signed declaration indicating the basis on which you qualify, a motivational letter setting out facts and circumstances to support your declaration and a copy of your passport.

"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," Tax Consulting South Africa tax managers Thomas Lobban, Victoria Lancefield and Reabetswe Moloi highlighted in a note.

The authors explain that taxpayers may opt to cease being a tax resident, in light of the "expat tax" which took effect on 1 March 2020 and the three-year lock up of retirement funds for South Africans leaving the country, which took effect on 1 March 2021.

The new tax change means that SA tax residents working abroad will only be exempt from paying tax on the first R1.25 million they earn abroad. Thereafter, they will be required to pay tax on their foreign earnings.

SARS can decline a declaration if a taxpayer does not meet the requirements to cease being a tax resident or if the taxpayer does not provide the relevant or correct documentation as requested.

"This latest development should put beyond any doubt the fact that SARS is aggressively targeting South African expatriates," Tax Consulting South Africa said.

"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." 

"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," they added. This includes checking that you applied the tests correctly, used the right exit date, that your tax calculation is accurate and you have the relevant documentation 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 tax payer 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."

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