Moving overseas involves significant tax and financial planning. Many mistakenly believe that relocating from South Africa is enough to end their tax obligations to the South African Revenue Service (SARS). This is not the case. Let’s explore this through a recent engagement with a client and SARS, highlighting the complexities involved in what seems like a straightforward process.

Let’s call our tax emigrant Dave. Born and raised in South Africa, Dave departed for the United States on January 1, 2015, with the intention of relocating permanently. He became a tax resident in the USA on January 2, 2015, and obtained his USA tax citizenship on June 1, 2020. Dave ceased being a tax resident of South Africa on January 1, 2015, based on no longer being “ordinarily resident.” However, he did not inform SARS of his USA tax residency status until June 2024. The Sentinel Legal and Consulting Team assisted in submitting the required documentation to SARS and updated the RAV01 form on eFiling, disclosing his departure date and non-resident status.

In July 2024, our office received a notification from SARS requesting additional documentation to finalize Dave’s tax non-residency application. To proceed, SARS required Dave to submit his outstanding tax return for the 2023 tax year and provide proof of payment for a R1,000 administrative penalty for not submitting the 2023 tax return.

This request put Dave in a difficult position. He has been a tax resident in the USA since January 2, 2015, with only interest income from South African financial institutions, which is exempt under section 10(1)(h) of the Income Tax Act. However, to be tax compliant, he must submit his 2023 tax return, elect the section 10(1)(h) exemption, and then provide supporting documents to substantiate his interest exemption claim, which also entails submitting the SARS “confirmation of tax non-residency” letter. Yet, he cannot get the required “confirmation of tax non-residency” letter from SARS, without first being tax compliant, creating a no-win situation.

What does the Tax Administration Act say?

According to section 23 of the Tax Administration Act No. 28 of 2011 (TAA), taxpayers must inform SARS within 21 days of any changes in their registered details, including tax residency status. Failing to do so allows SARS to tax individuals on their worldwide income, contravening the TAA. Although all taxpayers should comply with the TAA, practical challenges arise, especially as SARS’s requirements for tax non-residency declarations/reporting have changed multiple times over the last couple of years.  All applications approved by SARS prior to 1 March 2021 (date of new SARS process) seems to be null and void.

If the taxpayer is a tax resident in another jurisdiction, one could argue that SARS cannot demand dual tax residency merely due to a delay in notification. Moreover, SARS should not deny a change in tax residency if the taxpayer meets all administrative requirements at the time of application.

SARS’s website states that an application will be declined only if the taxpayer does not meet the criteria for ceasing to be a tax resident or cannot provide the requested relevant materials. It does not mention the submission of tax returns or payment of penalties for periods after ceasing tax residency.

How will we resolve Dave’s issue? 

We are currently engaging with SARS, explaining our conundrum and emphasizing that the taxpayer is legally a tax resident in another jurisdiction. We will assert that all standard and specific requirements listed on the SARS website have been met and that the reasons for declining our application are invalid. We will confirm that the 2023 tax return will be submitted once the tax non-residency letter is issued.

Conclusion

Our legal and consulting team specializes in facilitating a smooth transition from tax residency to non-residency. For further information, please refer to the related articles.

Joint authorship:

Michelle Tickner; General Practioner (SA) – Head of Department; Legal and Consulting Annelise Heydenrych – Cross Border Tax Consultant