My SA client is employed by the United Nations. Under the 1946 and 1947 Conventions, officials of the United Nations are exempt from taxation on their salaries. My understanding is that the Income Tax Act does not provide exemption
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
For purposes of the guidance that follows it was accepted that the individual, your client, is resident in the RSA and not exclusively deemed to be resident in a treaty country.
If the services are rendered in the RSA, section 10(1)(c) is applicable it provides an exemption in respect of salary and emoluments, (in this instance probably items (iv) – (vi)) of the Income Tax Act. It generally then applies to “any salary and emoluments payable to any subject of a foreign state” who is either temporarily employed in the RSA or not ordinarily resident in the RSA. The other requirement is that “the exemption of such salary and emoluments is authorized by an agreement entered into by the governments of such foreign state” or the relevant institution and the RSA. If the lawyer is a resident of the RSA this would not be available.
We agree that Article 34(b) of provides for an exemption. It doesn’t refer to the resident status or place where the services are rendered by the “Bank to Directors, alternates, officers or employees of the Bank, including experts performing missions for the Bank.
We suggest that the amount is then declared, on the ITR12, under the heading:
“Amounts Received/Accrued Considered Non - Taxable – Rands only, no cents (Excluding amounts received / accrued as a beneficiary of a trust(s), or deemed to have accrued in terms of s7)” under the heading “Other” and provide, in the “Description Relating to Other”, the detail (the reference to the Government Gazette and Article 34.
If section 10(1)(c) doesn’t apply, and the individual met, or will meet, the section 10(1)(o)(ii) requirements (employment outside the RSA and absence of 183 full days and 60 continuous full days), that exemption will be available. Under such circumstances, the individual will indeed be caught by the amendment to section 10(1)(o)(ii) that takes effect 1 March 2020.
We copied section 18 below for ease of reference:
Officials of the United Nations shall … Be exempt from taxation on the salaries and emoluments paid to them by the United Nations …
The general meaning of emolument doesn’t include a lump sum from a pension fund and the question is whether the word ‘emoluments’ would include the lump sum paid out by the UN Pension Fund. We don’t have a view on that, but submit that the section 10(1)(gC) will not be available.
If the transfer of the retirement interest was directly to a retirement annuity fund, it will only be tax neutral if the UN Pension Fund was an approved, by SARS, retirement fund. It would have been seen as a contribution to the fund and the deduction would have had to be made under section 11F.
We suggest that you advise your client to obtain a letter from the employer confirming the tax-exempt nature of the remuneration and from the UN Pension Fund with regard to the taxability of the lump sum withdrawal.