The Margo Commission (1987) was next and it recommended at Para 26-3 of its report that South Africa retain the source-based system and that there should be a broadening of the provisions of the judgment in the Income Tax Act. This Commission was of the opinion that a residence-based system was too complex for South Africa and would yield an insignificant increase in revenue over a source-based system.
Different basis for taxation
34; In others ..the principle of responsibility adopted is 'source of revenue' again apparently tax capital rests on the assumption that a country produces wealth because of its natural resources or the activities of its inhabitants. - Tants has a right to a part of that property, wherever its recipient is".
Importance of residence
It is a common cause that for decades the salary and wage earner has been the target of the tax authorities, who have turned their attention to whatever effort one makes to earn a living, in order to earn a suitable share for the public treasury . Much of this work will therefore focus on the effect of residence and related concepts on individual taxpayer income.
Objective of the study
Therefore, understanding the principles used by the Revenue authorities in these dispensations are essential in determining the outcome of what one has earned or accumulated through your efforts. This study will also examine the views embraced by courts both at home and in foreign dispensations, to add further clarity to what is meant by the words.
Chapter Two
Residence judicially considered
- Introduction
- The case of being "ordinary resident"
- The case of "residence"
- Case of absence and residence
- Case of physical presence
- Case of residence versus ordinary residence
- Case of residence for other entities
- Case of a permanent establishment
- Case of where residence is
- Ordinary resident summarised
Since then, in addition to visiting South Africa and other countries, he has lived and worked in the United States. Robinson, who was born in South Africa in 1840, did business in the country.
Chapter Three
South African tests for residence
- Introduction
- The South African model
- Ordinary resident test
- The physical presence test
Present in the Republic for more than 91 days (in total) during the assessment year. Present in the Republic for more than 91 days (in total) during each of the previous three years.
Chapter Four
Residence in Australia
- Introduction
- The meaning of residence
- Resident defined
- The resides or behaviour test
- The domicile or physical presence test
- The 183-day test
- The Commonwealth superannuation fund test
- The source of your income in Australia
- Exempt foreign income
- The case of juristic entities
- Legal cases
The primary test for determining a person's residency status is whether the person is resident in Australia within the ordinary meaning of. According to paragraph 12 of the same decision, the other tests in the definition do not require consideration if a person is resident in Australia within the ordinary meaning of the word.
Chapter Five
Residence in New Zealand
- Introduction
- Residence in New Zealand
- The source of your income in New Zealand
- Treatment of foreign income
- The case with juristic entities
Intentions — whether you intend to live in New Zealand or to return after some time overseas;. The position in New Zealand according to IR292 (2003) is "if you are a non-resident, you are only taxed on income you receive from a New Zealand source. 34;Anyone who has a 'permanent abode' in New Zealand has, is a New Zealand tax resident.
However, the New Zealand credit you can claim will be limited to the amount of New Zealand income tax payable on the overseas private pension. 34;Has its head office in New Zealand — the head office of the company is the office from which the business of the company is directed and carried out.
Chapter Six
Residence in the United Kingdom
- Introduction
- Residence in the United Kingdom
- Ordinary residence
- Resident in both the UK and elsewhere
- Split years
- The source of your income
- The case of juristic entities
- Legal cases
Under IR20 (2004), if you reside in Britain year after year, you will be treated as normally resident there. If you are 'resident' or 'ordinarily resident' in another country, this does not mean that you cannot also be 'resident' or 'ordinarily resident' in the United Kingdom,” says IR20 (2004). 34;You didn't do that. have been habitually resident in the United Kingdom and you are going to live there permanently or will stay there for at least two years.
You have been resident in the UK and you are traveling to take up full-time employment abroad and you meet certain conditions. The Special Commissioners held that he was not UK resident for tax purposes.
Chapter Seven
Residence in the United States
- Introduction
- Residence in the United States
- Green Card Test
- Substantial presence test
If you don't meet the green card test, you are then measured against the substantive attendance rules, the US Guide says. For purposes of these rules, as provided in the aforementioned publication, you are considered a US resident if you meet the specified test criteria during the calendar year. Under this test, you must be physically present in the United States on at least 31 days during the current calendar year and 183 days during the current year and the two previous years, counting all days physically present in the current year, but received only one-third the number of days of presence in the first preceding calendar year and only one-sixth the number of days in the second preceding year.
Chapter Eight
Residence and Source
- Introduction
- Source of your income in South Africa
- Interest
- Dividends
- Property and rental
- Unit trust investments
- Pensions and annuities
- Trading activities as a sole proprietor
- Royalties
- Controlled foreign companies (CFC's)
- Income from a foreign trust
- Non-residents working on a temporary basis
- Retirees who regularly spend time in South Africa
- Emigrants w h o regularly return to South Africa
He points out, however, that if the income rests with a South African resident in the year in which it accrues to the trust, it will be taxed in the hands of the resident in terms of s 25B of the Act. 34;It is clear that the retiree will meet the first requirement of the physical presence test, that of presence in South Africa in the current year of assessment for. For the remainder of the tax year he will only be subject to tax on source and deemed source receipts and accruals from a South African source.
Our expatriate will be present in South Africa for more than 91 days in the current assessment year, 91 days in each of the three previous assessment years and 549 days combined in the previous three years and will therefore meet the physical presence test requirements. 34;For the remainder of the year of assessment he will only be liable to tax in South Africa on his income and accruals from a South African source or a deemed South African source', warns Kolitz (2001).
Chapter Nine
Residence and service contracts
- Introduction
- Remuneration
- Foreign employees
- Foreign independent contractors
- Diplomatic representatives
- South Africans working abroad
A foreign company is deemed to have a permanent establishment in South Africa if any person, whether a resident of a foreign country or a local resident, acts on its behalf and such person ordinarily exercises authority in South Africa to enter into contracts in in the name of a foreign company. The next problem is to locate that source and in the case of personal services the location of the source is the place where the services are provided.” Broomberg (2004) commented on this case: “In the case that the decision the court turned to the nature of the employment.
Where the foreign employee is in South Africa for a period not exceeding 183 days in total in the relevant financial year, and he is employed by a resident of the other contracting state, and his income is not derived from a permanent establishment or fixed case should not be carried. base that the foreign employer has in South Africa, South Africa will generally not be entitled to impose tax on the employee's income". Representatives of foreign governments on the other hand, although resident in South Africa are in terms of the various residency tests exempt from paying tax in terms of s 10(1)(c)(iii) provided they are not "ordinarily resident" in South Africa.
Chapter Ten
Residence and other juristic entities
- Introduction
- T h e situation in South Africa
- The meaning of "place of effective management"
- Practical application by S A R S
- Facts and circumstances
- Legislative changes that will affect South Africa
34;The term "place of effective management" is not defined in the Act and the ordinary meaning of the words, taking into account international precedent and interpretation, will help to give it meaning. The general approach of SARS is that effective management is where the company is managed regularly or daily by the company's directors or senior managers, regardless of where the overriding control is exercised or where the board meets. It can also be referred to as the place for implementing the unit's overall group vision and goals".
Legal factors such as the place of incorporation, incorporation or establishment, the location of the registered office and the official; The frequency of meetings of the entity's directors or senior managers and where they take place;
Chapter Eleven
Capital Gains Tax (CGT)
- Introduction
- Residence rules
- Non-Residents
- Example
- C G T triggers
- No set-off of net losses
- How C G T gains or losses are accounted for
- Non-resident trusts
- Companies
With the promulgation of the Eighth Schedule to Income Tax, South Africa introduced CGT in the country from 1 October 2001. A UK resident will be liable to South African CGT if they dispose of their shareholding in a UK company. In the case of CGT, the Act specifically states that the tax applies to the disposal of 'any property of a resident'.
Non-resident trusts have no CGT liability in South Africa, except in the case of real estate or business assets, according to McAllister (2002). McAllister (2002) explains that when a company or other legal entity, including a trust (other than a special trust), makes a capital gain, 50% of that gain is subject to CGT in the hands of the entity concerned.
Chapter Twelve
Double Taxation Agreements
- Introduction
- Objectives of double taxation agreements
- Taxes subject to the agreement
- Residence in terms of the agreement
- Business profits
- Dividends
- Interest
- Royalties
- Income from rental
- Capital Gains Tax
- Income derived from employment
- Restricted agreements
- Transfer pricing
- Effect of a double tax agreement
In this case the dividends are considered as part of the business profits of that permanent establishment. This rule shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment. The excess portion of the payment remains taxable under the laws of each contracting state.
The above rule does not apply if the beneficial owner of the royalties, who is a resident of a Contracting State, carries on business in the other Contracting State from which the royalties arise, even if a permanent establishment would then apply. The words "for the purposes of the application" imply that the person must be covered by the provisions of a treaty, viz.
Chapter Thirteen
Conclusion
However, as time goes on, the acquisition of the necessary skills using income will have its effect on CGT, which will undoubtedly have a greater impact on the taxpayer's capital gains outcome. What can be expected to be scrutinized in the future will be the valuations made by taxpayers on assets on 1 October 2001 — the effective date of the introduction of CGT in South Africa. Unfortunately, the law did not specify who could make a valuation, thus leaving the issue of valuation open to challenge by anyone who wished to do so.
South African taxpayers have benefited from the lowest tax rates in the country's history, and the adoption of a residency-based tax system has just brought the country into line with its major trading partners. Report of the Commission of Inguiry on the Tax Structure of the Republic of South Africa.
