Some people are fortunate in that they do not have to be in South Africa all year round. We are often asked what minimum period in a tax year a South African citizen needs to be non-resident to escape paying tax.
The South African tax system is source-based, which means if you earn income from a South African source, it may be taxed here regardless of where you reside. So, for example if you own a property in South Africa and you earn rental income from it, the originating cause of the income is the property and it is located in South Africa. So no matter where you reside, the rental will be taxed here.
But there are certain types of income which South Africa will tax if you are a resident, even if the source of the income is another country. An example is interest you earn, if you are a South African resident, from your investments in income-earning assets abroad. Where the income is taxable is determined not only by the fact that you are a resident of South Africa but also by double tax agreements (DTAs). DTAs have their own special rules regarding residency.
But let's assume there is no DTA and you simply wish to ensure that you are not resident in South Africa for long enough to enable you to take advantage of the tax-free status of non-residents.
Unfortunately, there are no hard-and-fast rules. Unlike other countries, there is no specific period for which you can remain absent to be classified as a non-resident.
The cases say that a person is considered to be resident in the place to which he would naturally return from his wanderings not very definitive.
If, for example, you formally emigrate, you move your family and possessions overseas, sell your property in South Africa and set up a home overseas and only return to South Africa once a year, if that, on holiday, you have clearly become non -resident.
But if you do not formally emigrate, you retain your home, possessions, club memberships, and so on, and you simply spend six months of the year "on holiday" in other countries and you do not have formal homes there, then you are clearly resident in South Africa. In this case you will not be able to claim tax exemption for certain income as a non-resident.
The big problem arises when you are somewhere in between. For example, you retain a home here, but you do have a home in another country along with all the other aspects of life that might be considered normal for a person who resides in the other country. Would the South African Revenue Services (SARS) view you as a non-resident? The answer is, it depends!
It depends on whether you are able to prove that South Africa is not the place to which you would naturally return from your wanderings while another place is. Each situation has to be evaluated on its merits.
This is most unsatisfactory. It leaves you, the taxpayer, unsure as to what tax you need to pay and where, and forces tax consultants like me to make a value judgment on your situation and hope that SARS agrees!!