Provisional tax implications of ceasing to be a tax resident in South Africa

The resident based tax system in South Africa entails that anyone who qualifies as a resident is liable to be taxed on their worldwide income, excluding certain exemptions. For non-residents, tax only applies to income sourced within South Africa.

As of the 1^st of March 2021, individuals who are not South African tax residents are allowed to access their full retirement benefit before maturity, in line with certain requirements. To qualify for this, individuals need to have no longer been a South Africa tax resident for an uninterrupted period of a minimum of three years, have informed SARS and stopped contributing to their fund altogether. A tax directive is also required before the total can be paid out.

Since your tax residency status determines how and what tax is applicable to you in South Africa, it is up to the individual to inform SARS of any relevant changes.

When should you inform SARS of a tax residency change?

Taxpayers are now able to declare their tax residence status when compiling their annual ITR12 return. With recent changes to the ITR12, taxpayers are now also able to indicate the specific year in which they ceased to be a tax resident. Once SARS has recognised this change, they will request the necessary information from you to process it correctly.

As individuals are legally obligated to inform SARS of any changes to their registered particulars within 21 business days, they may be subjected to certain penalties where there is non-compliance.  Should the disclosure of this information happen much later than the event itself, taxpayers are advised to consider submitting a voluntary disclosure application to avoid any penalties that may be levied to them.

Applicable tax consequences

Section 9H of the Income Tax Act specifies that individuals are required to dispose of their worldwide assets at their market value the day before changing their tax resident status to trigger a capital gains event. They are then required to purchase these assets back the first day they are officially declared a non-South African tax resident.

Due to this status change, individuals may be subject to provisional tax and hence are required to submit a provisional tax return and make the applicable payment.

As expert tax consultants, the team at MMS Group can assist with any tax-related matters you may require assistance for. For more information, get in touch with us here.

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