I have a question from a client that moved to Australia. He is not coming back to SA and does not have any income in SA onwards. He is in a process of Financial emigration. He is outside SA on a permanent basis for +-5 years know. The question is how does
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
It is our understanding that the term ‘financial emigration’ is the process whereby a South African resident changes their status with the Reserve bank to a non-resident. The RSA Reserve Bank guide refers to ‘individuals regarded as residents by the Financial Surveillance Department who are leaving South Africa to take up permanent residence in any country outside the CMA’ – paragraph 4.1. Paragraph 4 of the guide deals with the process to be followed in this regard. It is not a tax related issue and best referred to an authorised dealer.
From a tax point of view, if not having formally left South Africa, i.e. emigrated or no longer ordinarily resident in the RSA, the tie breaker clause of the relevant treaty, will have to be considered. In this instance it is possible that the individual was already someone who was deemed exclusively to be a resident of Australia. If so, the individual ceased being a resident (for tax purposes at that time) and had to inform SARS of the change. This is done on the ITR12.
For ease of reference, we copied Article 4 of the treaty below:
1. For the purposes of this Agreement, the term “resident of a Contracting State” means a person who is a resident of that State for the purposes of its tax. The Government of a Contracting State or a political subdivision or local authority of that State is also a resident of that State for the purposes of the Agreement.
2. A person is not a resident of a Contracting State for the purposes of the Agreement if the person is liable to tax in that State in respect only of income from sources in that State.
3. 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’s status shall be determined as follows:
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the individual shall be deemed to be a resident only of the State in which a permanent home is available to that individual; but if a permanent home is available in both States, or in neither of them, that individual shall be deemed to be a resident only of the State with which the individual’s personal and economic relations are closer (centre of vital interests);
if …”