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SARS exempts pensions from outside SA

26 November 2014   (0 Comments)
Posted by: Author: Amanda Visser
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Author: Amanda Visser (BDlive)

Pensions received while working abroad are now exempt from tax in SA, following a recent binding rule issued by the South African Revenue Service (SARS). The ruling, issued earlier this month, brings clarity after three years of uncertainty and growing concerns about the interpretation and application of the Income Tax Act.

A pension received outside of SA would now be exempt from local tax, irrespective of where the fund is located and is applicable to residents and nonresidents.

Several taxpayers have had their full pensions taxed by SARS, despite having received portions of it while working outside the country.

Tax paid on foreign pensions will be refunded once an assessment has been made.

Industry bodies such as the South African Institute for Chartered Accountants (Saica) and the South African Institute of Tax Professionals (Sait) made a submission to SARS in querying the interpretation and application of the Income Tax Act.

Piet Nel, Project Director of Tax at Saica, said his organisation had been made aware of several objections lodged by taxpayers against the taxation of pensions received for services that were rendered from outside SA. Many of the objections were disallowed by SARS.

The matter was set to be taken to court for clarity when the binding rule was issued, setting out the approach that would be followed in future. The rule gives clarity to the interpretation and application of the words "from a source outside the Republic" in the applicable section in the act (Section10(1)(gC)(11)).

SARS said the term "source outside the Republic" refers to the "cause which gives rise to the pension income". This is the service that was rendered.

Mr Nel said the approach was in line with international practice. He said the industry bodies had noticed a change in the application of the law over the past three years.

Cliffe Dekker Hofmeyr head of tax Emil Brincker said SARS had argued in the past that the location of the fund paying the pension or annuity was "decisive".

To the extent that the fund was located in SA, it was argued that the source was in SA and therefore that the total amount was taxable in SA irrespective of the fact that the pension may have related partly to services that were rendered outside the country.

"In terms of the new binding rule SARS has now indicated that the reference to source in the act refers to the originating cause that gives rise to the pension income, in other words where the services have been rendered."

Mr Brincker said a formula will be used to calculate the portion of a pension that will be exempt. The formula divides the total pension received by foreign services rendered and total services rendered.

SARS spokesman Adrian Lackay said it had taken legal advice on the approach to tax the total pension of South Africans who received pension payments while working outside the country. "The new rule sets out the SARS official view and disputes will be dealt with according to the law as set out in the rule."

Tax paid on foreign pensions will be refunded once an assessment has been made.

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Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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