Can you ever qualify for a nil rate of taxation in South Africa? This question was raised by Rhoderick Ross, a reader and company secretary.
He said that the minimum rate of income tax you can ever pay here is 19 percent, since according to tax law, if a taxpayer's income is nil or less, it will be deemed to be R1, and the lowest tax bracket of 19 percent comes into play.
Ross was commenting on last week's response by Robert Foster of Fincorp to a letter from an emigrant to Canada, D J Uys. Foster suggested that Uys leave his money in a preservation fund for two full tax years with nil income in South Africa. Based on a double taxation agreement with Canada, no tax would be withheld in South Africa.
Responding to Ross's comment, Foster said his answer was particular to this client's situation, which is that of a potential emigrant. According to independent legal advisers, the response was correct as the client is a non-resident.
"Of course, if the client did not emigrate but only worked offshore, he would be liable for at least the minimum average tax of 19 percent on any proceeds from a pension preservation fund before age 55.
"It is important to remember that we do not have tax treaties with all countries and that these change continuously," Foster adds.