Have a client who has dual citizenship in SA & Australia. She has a share portfolio approx $800,000 in Australia and is permanently resident her in SA. Dividends and interest declared get taxed in Australia and she has them transferred to a bank account i
Important:
This answer is based on tax law year ending 28 February 2018.
Answer:
From a tax point of view, and because Australia is a treaty country, one must determine if the individual concerned is a “person who is deemed to be exclusively a resident of another country for purposes of the application of any agreement entered into between the governments of the Republic and that other country for the avoidance of double taxation”.
Article 4, deals with residence, and reads as follows:
“1. For the purposes of this Agreement, a person is a resident of a Contracting State:
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in the case of Australia, if the person is a resident of Australia for the purposes of Australian tax but does not include any person who is liable to tax in Australia in respect only of income from sources in Australia; and
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in the case of South Africa, any individual who is ordinarily resident in South Africa and any other person which has its place of effective management in South Africa.
The term "resident" also includes a Contracting State and any political subdivision or local authority of that State.
2. Where by reason of the preceding provisions of this Article a person, being an individual, is a resident of both Contracting States, then the person shall be deemed to be a resident only of the Contracting State in which a permanent home is available to the person, or if a permanent home is available to the person in both Contracting States, or in neither of them, the person shall be deemed to be a resident only of the Contracting State with which the person's personal and economic relations are closer.”
This is important as the taxation of dividends and interest are specifically dealt with in the treaty. Note, the fact that person has dual citizen ship, is irrelevant in this respect.
Article 10(2) states that “dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident for the purposes of its tax, and according to the law of that State, but:
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no tax shall be charged on dividends where those dividends are paid out of profits that have borne the normal rate of company tax where those dividends are paid to a company which holds directly at least 10 per cent of the capital of the company paying the dividends; and
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tax charged shall not exceed 15 per cent of the gross amount of the dividends in all other cases, …
In terms of Article 11(2), “interest may also be taxed in the Contracting State in which it arises, and according to the law of that State, but the tax so charged shall not exceed 10 per cent of the gross amount of the interest.”
Because neither of these Articles gives sole taxing right to a country, and because she appears to be a resident of the RSA, the dividends and interest must also be declared in the RSA return, and the foreign taxes will qualify as a rebate.