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RSA taxability of UK pension payout for UK citizen who has worked in RSA for last few years

12 December 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: We have a client. This individual is originally from the UK, but works in South Africa and has done so for more than 5 years. From income tax perspective, he would be seen as a tax resident in RSA. He received a UK pension pay-out for the 2014 tax year. I could not identify anything in particular that would exempt this income in South Africa, nor any reason why it would not be taxable in South Africa. No taxes were deducted prior to the amount being paid out from UK side.

The taxpayer enquired as to the taxes payable, as he stated that this is state pension from UK and another tax practitioner advised that there should be no taxes on this.

Please can you confirm where I should look to identify why this would be non-taxable?

A: The relevant legislation that you must consult is section 9(2)(i) and section 10(1)(gC) of the Income Tax (of the RSA) and this must be done in the context of the RSA / UK treaty.  

There are a number of issues that must be decided on: the first is the resident status of the individual concerned.  The fact that the individual has ‘worked in South Africa … for more than 5 years’ on its own does not make the individual a tax resident of the RSA.  This is determined in terms of Article 4(2) of the treaty.  

Once this is established you will determine if the RSA has a right to tax the pension.  From the limited facts provided we can’t comment on whether or not Article 17(1) applies.  The RSA would only get a right to tax foreign source income if the person is a resident – see above.  If so, section 10(1)(gC) will provide an exemption for the foreign source – see also SARS’s recently issued binding general ruling (number 25).   

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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