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FAQ - 2 March 2016

Wednesday, 02 March 2016   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Does my client need to pay tax on SA income if he doesn’t live here?

Q: A client of mine has been living in the UK for the past 6 years and he hasn’t visited SA during that time.  He is currently still submitting tax forms and now owes monies to SARS. Does he have to pay as this is income from an annuity and a pension?  Is he still seen as a resident?

A: The service offered by SAIT is limited to guidance and we therefore can’t answer the question if he is a "resident or not”.  We also don’t have enough information to provide the guidance required.  

The application of the law would depend on whether or not he is "deemed to be exclusively a resident of another country (the UK) for purposes of the application of any agreement entered into between the governments of the Republic (RSA) and that other country (the UK) for the avoidance of double taxation.  

The question of whether the client is liable to tax in the RSA arises by reason of that person’s domicile, residence, place of management, place of incorporation or any other criterion of a similar nature.  Whether or not he was "living in the UK for the past 6 years” or "never visited SA in these years” is not relevant if an issue of dual residence arises.  You didn’t indicate that he stopped being ordinarily resident of the RSA.  

The resident status is then determined in terms of article 4 of the treaty.  Article 4(2) reads as follows:

Where by reason of the provisions of paragraph 1 of this Article an individual is a resident of both Contracting States, then that individual’s status shall be determined in accordance with the following rules:

(a) the individual shall be deemed to be a resident solely of the Contracting 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);

(b) if sole residence cannot be determined under the provisions of sub-paragraph (a), the individual shall be deemed to be a resident solely of the State in which the individual has an habitual abode;

(c) if the individual has an habitual abode in both Contracting States or in neither of them, the individual shall be deemed to be a resident solely of the State of which the individual is a national;

(d) if the individual is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

2. What expenses can a professional sportsman claim against winnings?

Q: A client of mine is a professional sportsman. What expenses will SARS allow as deductions against his winnings?

A: Your request requires more than guidance - we can’t list all the expenses that he may potentially qualify for.  If you are uncertain about a specific one please send a new request.  The following guidance is relevant to the issue of whether deductions can be made.  

The Tax Administration Act (not SARS) provides that the "taxpayer bears the burden of proving: 

(a) that an amount, transaction, event or item is exempt or otherwise not taxable;

(b) that an amount or item is deductible …” 

Judge Conradie in Warner Lambert (SA) v CSARS stated the law in this regard when he said "Deductible expenditure has certain characteristics: it must be incurred in the production of income (s 11(a)) and will not be allowed as a deduction against gross income if it is not laid out or expended for the purposes of trade.”  

The crucial requirement of section 11(a) is that deductions are only allowed, for the purpose of determining the taxable income derived by any person” from the income of that person derived from carrying on any trade.  

A trade is defined in section 1(1) of the Income Tax Act and the view of the courts is that it must be interpreted widely.  We accept that the issue here is not the actual point in time when the person commenced the trade as section 11A will apply in respect of expenditure and losses actually incurred by that person prior to the commencement of and in preparation for carrying on that trade.  A professional sport’s person will carry on a trade and it is unlikely that section 20A will apply.  

Essentially the deductions will be allowed if, in general, they were actually incurred in the production of income and are not capital in nature.  The other specific deductions, such as for instance section 11(e) will also be available.  

Disclaimer: Nothing in these queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.  



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