Tax Alert // South African tax changes – August 2019 update

Background

Many South Africans have made Australia their home away from home. The weather and similar outdoor lifestyle to their home country has made living in Australia an attractive choice whilst still being able to retain ties to South Africa (SA). Often this journey
starts with a secondment or travel to Australia, and continues until they become long term residents with a good job, family and property interests here.

Making the decision to move here permanently is a big decision, and can have SA tax implications which require careful planning. We meet many individuals who have left their SA tax residency status unresolved, seeking to avoid the capital gains tax exit charge and relying on the overseas employment exemption to exclude Australian earnings from SA taxes.

Whilst we cannot advise on SA taxes, we wanted to ensure our contacts and clients are aware of the changes that have been made to SA income tax law that could impact expats here:

• Currently a SA tax resident can work overseas and their overseas employment income should be exempt from SA tax provided they work for at least 61 continuous days and an aggregate of 184 days in a 12 month period outside SA
• Recently enacted SA tax legislation will remove this exemption for those SA individuals who are not physically present but remain ‘ordinarily resident’ in SA and tax overseas employment income to the extent it exceeds SA R1 million (about $97,000 at August 2019)
• The purpose of the change in legislation is to stop SA tax residents not paying any tax, particularly where they are working in low or zero tax countries, but it could impact them where Australian tax is paid at lower rates than apply in SA
• The change in legislation means that the above rules are expected to apply from 1 March 2020

What next?

We highlighted these changes last year and noted there was a possibility they could be modified or dropped before 2020, but we understand the Treasury is pressing ahead.

We recommend SA citizens who have not resolved their tax residence status with the South African Revenue Service consider the following issues and seek urgent advice:

• How will Australian employment income be taxed in SA under the new regime and what disclosures will be required from 1 March 2020.
• Should SA tax residents change their tax residency status which in turn could have SA tax issues in terms of deemed disposals of assets for capital gains tax purposes.
• How will the Australian/SA double tax agreement apply, and the practical requirements be met to claim foreign tax credits in SA.
• What is the impact on tax equalisation payments and payroll adjustments for employers who have incentivised employees to transfer here to work for them.

Bentleys has extensive experience of advising the internationally mobile on their personal and business tax matters. We are a member of Allinial Global – an association of independent accounting and consulting firms and a cohesive network of over 169 firms in 69 countries. We can leverage the Allinial Global network to shape international solutions.

If you are earning over A$97,000 (based on exchange rates at the time of writing) you could be affected by this change – please contact your Bentleys tax advisor to discuss your next steps.