Residency Status Of a Non-Resident Who Applies For a Temporary Residence Permit
27 September 2013
Posted by: Author: BDO
Binding Private Ruling 153 dealt with the residency status of a non-resident natural person who intended to apply for a temporary residence permit in South Africa and whether the application for such a permit would result in that person becoming ordinarily resident for South African income tax purposes as per the section 1(1) definition of ‘resident' in the Income Tax Act.
The Applicant was an individual who was a national of a foreign country (‘Country X'). The Applicant was resident in Country X and a registered taxpayer with Country X's tax authorities. The Applicant had recently retired in Country X and was spending time in South Africa on extended visits / holidays.
The Applicant was contemplating spending his post-retirement year in South Africa. He intended applying to the South African Department of Home Affairs for temporary residence in the form of a retired person's permit. SARS made an additional condition and assumption in the ruling that the Applicant was not a ‘resident' as defined in section 1(1) at the time of the application.
The ruling made was that an application for a retired person's permit will not, per se, be sufficient for the Applicant to become ordinarily resident in South Africa, provided the Applicant did not indicate to the Department of Home Affairs on the relevant application form(s) that he intended to settle in South Africa on a permanent basis. In our view the application for permanent residency in South Africa would be an important factor to be taken into account in deciding on whether or not South Africa was to be regarded as a person's true or real home, which is the meaning which our courts have ascribed to the term ‘ordinarily resident'.
It should be noted that the physical presence test may still apply to a person, notwithstanding that the person may not be regarded as being ordinarily resident in South Africa. However, the physical presence test could only deem a person to be a resident if the person had spent the requisite number of days in South Africa for each of six years of assessment: the requisite number of days being more than 91 days in each of the current and preceding years of assessment and more than 915 days in aggregate in the previous five years of assessment. It would therefore take at least five completed years of assessment before the physical presence test could retrospectively deem a person to be a resident as defined from the commencement of the sixth year of assessment.
It is interesting to note that retired person's permits are only valid for a period of 4 years. They may be reissued by the Department of Home Affairs, but again they will only be valid for a period of 4 years. So during such a person's second consecutive retired person's permit he or she could run the risk of becoming a South African tax resident via the physical present test.
This article was first published on BDO.co.za