[FAQ] Rebates in the year a taxpayer ceases to be resident in South Africa

---

[FAQ] Rebates in the year a taxpayer ceases to be resident in South Africa

• 02 November 2020
• Accounting & Financial Reporting
• Piet Nel

Background

A taxpayer ceased to be a resident in South Africa during the year of assessment, and it came to his attention that SARS allows the rebates on a pro-rata basis in such cases. The taxpayer declared income only for that specific period and he accepts that rebates will only be allowed accordingly.

However, what if a taxpayer ceased to be a resident but still has a property in South Africa from which rental income is received for the full year of assessment? Will the rebates only be allowed pro-rata for the period up until the taxpayer ceased to be a resident? How will SARS address this issue?

Answer

The Income Tax Act

In terms of section 9H(2) of the Income Tax Act, where a person … that is a resident ceases during any year of assessment of that person to be a resident-
(a) …
(b) that year of assessment must be deemed to have ended on the date immediately before the day on which that person so ceases to be a resident; and
(c) the next succeeding year of assessment of that person must be deemed to have commenced on the day on which that person so ceases to be a resident.

Under section 66(13)(a)(ii), a return for normal tax to be made by any person in respect of any year of assessment shall be … in the case of a person where a person ceased to be a resident … shall be made for the period commencing on the first day of that period and ending on the day preceding the date that the person ceases to be a resident.

Application of the principles

In terms of section 6(4) of the Income Tax Act, where the period assessed is less than 12 months, the amount to be allowed by way of a rebate under section 6(2) shall be such amount as bears to the full amount of such rebate, the same ratio as the period assessed bears to 12 months.

Your statement that the income is ‘declared for the full year of assessment’ needs comment as well. It is only South Africa sourced income that must be declared by the non-resident for the rest of the year.

Webinar Commentary

Further webinar commentary on Application of tax rates, s6(2) rebates can be accessed here.

 

FAQs

1. Are tax rebates pro-rated when I cease to be a South African resident? 

Yes. Under Section 6(4) of the Income Tax Act, if the period assessed is less than 12 months, the primary, secondary, and tertiary rebates (Section 6(2)) are pro-rated according to the ratio of the assessment period to 12 months.

2. What determines the end of my tax year when I emigrate? 

According to Section 9H(2), your year of assessment is deemed to end on the date immediately before the day you cease to be a resident. A new tax year (as a non-resident) begins on the day you cease residence.

3. Do I lose my tax rebates if I leave South Africa? 

You do not lose them entirely, but they are reduced. You only get the portion of the rebate applicable to the time you were a tax resident during that tax year.

4. How is rental income taxed after ceasing residence? 

If you own property in SA and earn rental income after ceasing residence, that income is South African sourced and remains taxable in SA. You will need to declare this income as a non-resident.

5. Does earning SA income after leaving change the pro-rata rebate rule? 

No. The "year of assessment" for your time as a resident ends the day before you leave. Even if you earn income in SA for the rest of the year, the rebate applicable to your period of residence is still pro-rated for that specific assessment period.

6. What tax return do I submit for the year I leave SA? 

You will essentially have two periods to account for: one return for the period you were a resident (up to the day before leaving) and potentially another for the period you were a non-resident if you have SA-sourced income.

7. Does the interest exemption also get pro-rated? 

While this article focuses on rebates, typically, strict annual exemptions like the interest exemption are also applied per year of assessment. Since the tax year is split under Section 9H, the application follows the "year of assessment" definition.

8. What is Section 9H(2)? 

Section 9H(2) determines the timing of ceasing residence. It deems the resident tax year to end the day before you leave and the non-resident tax year to start on the day you leave, effectively splitting the fiscal year.

9. Why does SARS pro-rate the rebate? 

Because the "period assessed" is less than 12 months. The rebate is intended to cover a full 12-month tax year, so it is adjusted strictly based on the time you were a tax resident.

10. Can I claim the full rebate if I file for the full tax year? 

No. As a person ceasing residence, your tax year is legally cut short by Section 9H. You cannot file a standard 12-month return for that specific period; you must file for the shortened period, triggering the pro-rata calculation.

1 COMMENTS

LEAVE A COMMENT