I received a query from one of my clients who has an expat tax return and the return was completed as per usual. The taxpayer has a 100% of all remuneration earned – locally & foreign worth 1 266 312. Foreign income on the IRP5 is detailed as follows: Sou
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
You have not provided detail of the grounds of the assessment, or additional assessment, in this case. Or of what amount was actually exempt under section 10(1)(o)(ii) on the assessment.
We will provide some basic guidance.
The SARS guide to employers specifically states that “Code 3651 MUST only be used for foreign services income.” The same applies to code 3655 (bonus for foreign services income). Code 3763 is used for foreign allowances. These codes are ‘gross income’ codes – so to speak – see the definition of remuneration in paragraph 1 of the Fourth Schedule to the Income Tax Act.
Where the employer chose to withhold employees’ tax in respect of the foreign source services, the taxpayer must, in the return of income, make deduction by capturing the exempt amount next to code 4041. SARS states, in the 2019 guide, “the amount considered as exempt must be inserted as a deduction next to source code 4041 in the ‘Other deductions’ section of the return.”
We are not sure that this is what created the problem here.
SARS, in the practice generally prevailing, states that “it is accepted that it is correct to apportion income if it is clear that a portion of such income relates to services rendered both inside and outside the Republic.” The Republic being the RSA.
Remuneration received or accrued by any employee relating to services rendered in more than one year of assessment, is deemed to have accrued evenly over the period during which the services were rendered.32 An example could be a bonus that accrues in one year but in relation to services rendered in both the current and the previous year … SARS accepts the following as the correct method to calculate the exempt portion of remuneration:
Work days outside the Republic for the period × Remuneration received
Total work days for the period during the period
= Exempt portion of remuneration
This may well be applicable in your instance.