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FAQ - 14 August 2014

12 August 2014   (1 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Dual residency where taxpayer moves to another country for a number of years

Q: My client is employed by a South African company that will be opening a branch in Botswana. The taxpayer and his family will be moving to Botswana for approximately 5 years. He will not sell his house in Cape Town and intends on moving back to South Africa. Will my client be deemed to be a tax resident in Botswana and declare the income in his SA tax return as non-taxable (section 10(1)(o)) or will he continue to be a tax resident in South Africa and be able to claim the section 10(1)(o)(ii) deduction?

A: Because Botswana gets a right to tax your client’s income we submit that the resident status of the individual must be determined in terms of article 4 of the RSA / Botswana treaty. We submit that the tie-breaker clause will then kick in - specifically the following one:

Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then that individual’s status shall be determined as follows:

(a) the individual shall be deemed to be a resident solely of the State in which a permanent home is available to the individual; if a permanent home is available to the individual in both States, the individual shall be deemed to be a resident solely of the State with which the individual’s personal and economic relations are closer (centre of vital interests);

The OECD commentary in this regard reads as follows:"Subparagraph a) means, therefore, that in the application of the Convention (that is, where there is a conflict between the laws of the two States) it is considered that the residence is that place where the individual owns or possesses a home; this home must be permanent, that is to say, the individual must have arranged and retained it for his permanent use as opposed to staying at a particular place under such conditions that it is evident that the stay is intended to be of short duration.” 

We therefore submit that your client will not be a "person who is deemed to be exclusively a resident of another country for purposes of the application of any agreement entered into between the governments of the Republic and that other country for the avoidance of double taxation…”  and therefore a resident of the RSA (ordinarily resident). 

Your client will then qualify for the section 10(1)(o)(ii) exemption (not a deduction). He will be taxed on the remuneration income in Botswana.

2. The deductibility of education costs for "special-needs” children

Q: Can school fees for special needs children be deductible for Income Tax (ITR14) purposes?

A: We are not sure what you mean by "special needs children". For the purposes of the Income Tax Act "disability” means a moderate to severe limitation of a person’s ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment, if the limitation—

(a) has lasted or has a prognosis of lasting more than a year; and

(b) is diagnosed by a duly registered medical practitioner in accordance with criteria prescribed by the Commissioner. 

The SARS guide explains it as follows:

Special education schools for learners with disabilities. Qualifying expenses will include –

  • school assistant or classroom costs; and  
  • school fees limited to the amount in excess of the fees that would have been payable if the person attended the closest fee-paying public school not specialising in learners with special educational needs.

Schools not specialising in learners with special educational needs – deductible expenses are limited to additional expenses incurred and paid as a result of the disability.

Also included are tutoring services used by, and which are supplementary to the primary education of a person with a learning disability or impairment in intellectual or mental functions, and paid to someone in the business of providing such services who is not related to the person being tutored. 


Steven Hall says...
Posted 18 August 2014
I have a client that has been living in Dubai for the last 10 years. Still regards SA as home. Has a few properties here, and in Dubai. How does he treat dividend income and CGT on disposals abroad ( from a South african context). Fully complies with 183 days and 60 days etc.Income ins Dubai not taxed. Intends on returning to SA one day



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