[FAQ] Tax residency for an individual living in Guernsey

[FAQ] Tax residency for an individual living in Guernsey

• 09 March 2021
• Individuals Tax
• Piet Nel

This article is based on tax law for the year ending 28 February 2021.

Background

A taxpayer left the Republic of South Africa (RSA) and moved to Guernsey on 1 March 2020. He has not formally emigrated, but it became his permanent intention not to be ordinarily resident in the RSA from 1 March. His most fixed and settled place of residence and the location of his personal belongings are all based in Guernsey. He has also applied for permanent residence in Guernsey. He will however retain an investment apartment in Johannesburg due to his son being at a university in Johannesburg. He also owned an apartment in the United Kingdom and an investment in a S&P500 Index.

Please advise as to the date when the taxpayer ceased tax residency in the RSA and applicable exit charges.

Answer

The RSA doesn’t have a treaty with Guernsey. The person must then cease to be ordinarily resident in the RSA when he ceases to be a  resident of the RSA. The exact date of when a person is no longer “ordinarily resident” in the RSA, where the taxpayer doesn’t formally emigrate, could in the first instance be a subjective test.

Judge Goldstone, in CIR v Kuttel, said that he “would respectfully adopt the formulation of” Judge Schreiner “and hold that a person is "ordinarily resident" where he has his usual or principal residence, i.e. what may be described as his real home.”

Judge Schreiner, referred to above, in Cohen v CIR, made the following statement:

“It seems to me that the precise effect to be given to the word "ordinarily" is linked up with the question whether a man can be "ordinarily resident" for the purpose of the statute in question in more than one country. That question has not been authoritatively decided in relation to the British Income Tax Act and there is no decision on the subject in our Courts. If, though a man may be "resident" in more than one country at a time he can only be "ordinarily resident" in one, it would be natural to interpret "ordinarily" by reference to the country of his most fixed or settled residence. This might not be his country of domicile, for it might not be his domicile of origin and he might not have formed the fixed and settled intention, which "excludes all contemplation of any event on the occurrence of which the residence would cease", which is necessary to bring into existence a domicile of choice (Johnson v Johnson (1931 AD 391) ). But his ordinary residence would be the country to which he would naturally and as a matter of course return from his wanderings; as contrasted with other lands it might be called his usual or principal residence and it would be described more aptly than other countries as his real home. If this suggested meaning were given to "ordinarily" it would not, I think, be logically permissible to hold that a person could be "ordinarily resident" in more than one country at the same time.”

You have stated that the individual does have a property in the RSA. The taxpayer will have to prove there is no “return home”, as Judge Goldstone referred to it, in the RSA. The double taxation agreements also refer, for purposes of the tie-breaker clause, also refers to “a permanent home”.

The OECD commentary makes the following statement:

“… the permanence of the home is essential; this means that the individual has arranged to have the dwelling available to him at all times continuously, and not occasionally for the purpose of a stay which, owing to the reasons for it, is necessarily of short duration (travel for pleasure, business travel, educational travel, attending a course at a school, etc.).”

I submit that there must also be an intention, on the part of the taxpayer, that the absence from the RSA is not a temporary one. It may be the reason that SARS gives, as a general rule, the date of emigration as the date of ceasing to be a resident. This then becomes a factual determination and it confirms that there is a permanent home in another country and an indication that the other country has granted the person residency there.

Without giving an opinion from our side, you will have to base your opinion on the following: There must be no “intention to be ordinarily resident in the” RSA (the subjective test). The “person’s most fixed and settled place of residence”, and “the location of the natural person’s personal belongings”, must not be in the RSA. With regard to the status of the individual in Guernsey – ideally, he or she must be an immigrant there, or there must be “application for permanent residence or citizenship” in Guernsey.

The question then is the exact date on which the change happened. That is where your own professional judgment is required to be applied to the specific circumstances. It may be 1 March 2020, but your opinion will deal with that.

Webinar Commentary

Further webinar commentary on Tax2020: The Tax Migration vs Financial Emigration can be accessed here.

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