If a taxpayer is working abroad and has received income in excess of R1.25million, what will the tax rate be on the amount in excess?
Important:
This answer is based on tax law year ending 28 February 2020.
Answer:
From 1 March 2020, if all the requirements of section 10(1)(o)(ii) are met, the exemption that the individual is entitled to would indeed then be an amount of R1,25 million. This will be applied by SARS on assessment. The tax payable is determined on the taxable income of the individual concerned. You start with the gross income of the individual, with respect to the foreign remuneration converted to ZAR at the spot rate or average rate. That is reduced by the section 10(1)(o)(ii) exemption (which equals ‘income’ as defined). The person, in determining his or her taxable income in the RSA, would only be entitled to make a deduction of items allowed by the RSA Income Tax Act – in other words, not all the deductions on the foreign payslip may qualify for deduction. Remember that the contributions to approved retirement funds will be limited – see section 11F – and there is a specific order (and apportionment) that must be observed. The same applies to section 18A. The tax rate, applicable to the taxable income is then applied to the taxable income (from 18% onwards). With regard to the foreign tax you must remember, when the calculation of the foreign tax rebate is done, the section 6quat(1B) limit. The rebate of any tax proved to be payable to any sphere of government of any country other than the RSA, without any right of recovery, must not “in aggregate exceed an amount which bears to the total normal tax payable the same ratio as the total taxable income attributable to the income, proportional amount, taxable capital gain or amount, as the case may be, which is included as contemplated in section 6quat(1), bears to the total taxable income.” In addition, section 6quat(1B), which must be read with section 11F (contributions to retirement funds), section 18A (donations) and section 6quat(1C) prescribes the order of the deductions. SARS’s interpretation Note 18 explains this quite well.