The office of the Tax Ombud (OTO) has published in 2022, a draft Compendium of Taxpayers’ Rights, Entitlements and Obligations vis-à-vis SARS. This is not a legally enforceable Bill of Rights but a compilation of principles contained in the Constitution, Tax Legislation (including the Tax Administration Act) and SARS Service Charter. In this sense it consolidates taxpayer’s rights which are contained in various other pieces of legislation and is thus a useful first reference summary.
The Compendium seeks to strike a healthy balance between SARS powers and duties on the one hand and taxpayers rights and obligations on the other.
The ten rights of taxpayers are as follows:
1. You have the right to access to information
2. You are entitled to receive quality and timely service from SARS
3. You have the right to a fair, unbiased and just tax system
4. You do not have to pay any more than the correct amount of tax due to SARS
5. Your right to privacy and confidentiality
6. The right to retain representation
7. You are entitled to finality
8. You are entitled to make certain request / proposals / applications to SARS
9. You are entitled to complain without fear of victimisation
10. You have the right to dispute assessments / decisions
RETIREMENT FUND ANNUITIES TO NON-RESIDENTS
The South African Reserve Bank (SARB) concept of “emigration” (including blocked Rand account) was replaced by SARS tax residency status effective 1 March 2021.
A tax non-resident permanently abroad can apply to an authorised dealer (eg. bank) to transfer up to R10 million per annum subject to a Tax Compliance Certificate (TCS). The challenge faced by tax non-residents who are receiving for example, a living annuity from a RSA source is, however, the levy of PAYE in terms of the Fourth Schedule to the Income Tax Act. The general rule is that the administrator of a retirement fund must deduct PAYE from an annuity and pay such amount to SARS.
However, a SARS form RST01 pertains to tax non-residents who qualify for tax relief from RSA tax (and hence PAYE) on pensions and annuities under a Double Tax Agreement. There is a section to be completed by the tax office in the country of tax residence including a declaration that the taxpayer is tax resident there and the tax reference number of the non-resident.
SOME HIDDEN PITFALLS OF ATTAINING TAX NON-RESIDENCY STATUS
Venture capital shares: Interface of 12J and 9H
Section 12J(9) exempts a recoupment of a venture capital share if the share has been held by the taxpayer for a period of 5 years. It is accepted that any CGT gain is subject to the application of Section 9H, being the so-termed “exit tax” triggered upon a change of tax residency.
The crisp issue is if the taxpayer ceases to be a RSA tax resident within 5 years and there is a deemed disposal in terms of Section 9H of assets (for CGT purposes) whether this disposal extends to Section 12(J)(9).Also, if the taxpayer continues to actually hold the share (post change of tax residency), could the Section 12J(9) exemption still apply?
Our view is that –
Section 9H is contained in the main text of the Income Tax Act (and not in the Eighth Schedule, being the CGT legislation) and thus a deemed disposal for Section 9H will also be treated as an actual disposal for Section 12(J)(9) as both sections are contained in the main text of the Income Tax Act and are not to be read independently of each other.
It follows that the Section 12(J)(9) exemption will not apply, if there is a change of tax residency within a 5 year period from date of acquisition of the venture capital share and thus there is a recoupment.
Primary Residence CGT exemption limitations
The R2 million CGT exemption of the gain element applies to a primary residence property upon a disposal. Upon exit from RSA there is no deemed disposal of immovable property situated in South Africa by virtue of section 9 H(4)(a). A primary residence situated in South Africa will therefore not be subject to the exit charge under section 9H when the owner ceases to be a resident. Instead, any capital gain or loss must be accounted for when the property is actually sold or when another deemed disposal event such as death or donation occurs.
In this latter instance, para 47 of the Eighth schedule provides that the R 2 m exemption be apportioned pro rata to a person’s actual occupation vs the total period the property was held. It follows that this would over time reduce the amount qualifying for exemption for a seller who is absent, for example offshore and who sells the property only in some future year.
CORPORATE TAX RATE – BUDGET 2023
The corporate tax rate will reduce by one percentage point to 27% but only for years of assessment ending on or after 31 March 2023. Put another way, this reduced rate applies only for years of assessment commencing 1 April 2022 and thus companies with a year of assessment commencing 1 March 2022 will benefit only in the next tax year, namely 2023/4.
The amendments giving effect to the limitation of the amount of assessed losses in section 20 and certain foreign interest deductions in section 23M come into effect for years of assessment ending on 31 March 2023 in order to coincide with the reduction in the corporate rate of tax to 27%.
In this third newsletter for 2022 we consider the following:
Draft Compendium of Taxpayers Rights;
Retirement Fund Annuities to Non-residents;
Some hidden pitfalls of attaining tax non-residency status;
Corporate Tax Rate – Budget 2023;
SARS Interpretation Notes Noter-up.