In-depth notes covering the concept of 'Residency' in tax, one of the most important sections to master as it dictates your understanding of the sections to follow. These notes were made using the lectures and the SILKE textbook.
Overview of gross income
o Basic framework for calculating a person’s taxable income
- Gross income
- Add special inclusions
- Less: exempt income
- Income
- Less deductions and allowances
- Taxable income
o Gross income: in relation to any year or period of assessment means in the
case of any resident, the total amount, in cash or otherwise, received by or
accrued to or in favor of such resident; or in the case of any person other than
a resident, the total amount in cash or otherwise, received by or accrued to or
in favor of such a person from a source within the republic during such a year
of assessment, excluding receipts or accruals of a capital nature
o Requirements of the definition must be complied with for an amount to qualify
as gross income
o Resident:
a) There must be an amount, in cash or otherwise
b) That is received by or accrued to or in favor of such a resident
c) During a year or period of assessment
d) Excluding receipts or accruals that are of a capital nature
o Non-resident:
a) There must be an amount, in cash or otherwise
b) That is received by or accrued to or in favor of such a non-resident
c) During a year or period of assessment
d) From a source within RSA
e) Excluding receipts or accruals that are of a capital nature
o Although capital receipts and accruals are excluded from a person’s gross
income under the above definition, certain receipts and accruals will be
included as specific inclusions
Resident and non-resident
o Resident means any natural person who is ordinarily in the Republic or not at
any time during the relevant year of assessment ordinarily resident in the
Republic, if that person was physically present in the republic but does not
include any person who is deemed to be exclusively a resident of another
country for purposes of the application of any agreement entered between the
governments of the Republic and that other country for the avoidance of
double taxation
o The resident of a person is determined in terms of the definition of ‘resident in
s 1, the definition distinguishes between natural persons and persons other
than natural persons
o The definition specifically provides that a person is not a resident if that
person is deemed to be exclusively a resident of the other country under the
DTA, before considering whether the person is a resident under the definition
of ‘resident’.
,Test ordinarily present before physical presence
Residence: ordinary residence test – case law
DO NOT quote the full case name – marker will assume cheating
1. Cohen v CIR 1946 AD 174:
“his ordinary residence would be the country to which he would naturally and as a
matter of course return from his wanderings; as contrasted with other lands it
might be called his usual or principle residence and it would be described more
aptly than other countries as his real home”
2. CIR v Kuttel 54 SATC 298:
“the natural and ordinary meaning of ‘ordinarily resident’ was ‘that a person must be
habitually and normally resident here, apart from temporary or occasional
absences of long or short duration.”
3. Levene v IRC 1928 AC:
Residence in a place with some degree of continuity, apart from accidental or
temporary absences
, Determining whether a natural person is “ordinarily resident”
The question of whether a natural person is ordinarily resident in a country is one of
fact and each case must be decided on its own merits, taking into consideration
principles established by case law. It is not possible to lay down hard and fast rules.
When assessing whether a natural person is ordinarily resident in the Republic, the
following factors will be taken into consideration:
An intention to be ordinarily resident in the Republic
The natural person’s most fixed and settled place of residence
The natural person’s habitual abode, that is, the place where that person
stays most often, and his or her present habits and mode of life
The place of business and personal interests of the natural person and his or
her family
Employment and economic factors
The status of the individual in the Republic and in other countries, for
example, whether he or she is an immigrant and what the work permit periods
and conditions are
The location of the natural person’s personal belongings
The natural person’s nationality
Family and social relations (for example, schools, places of worship and
sports or social clubs)
Political, cultural or other activities
That natural person’s application for permanent residence or citizenship
Periods abroad, purpose and nature of visits
Frequency of and reasons for visits
Effective dates for becoming and ceasing to be “ordinarily resident”
A natural person becomes “resident” in the Republic effective from a specific date
which, in the case of the “ordinarily resident” test, is the date on which that person
became “ordinarily resident”. This will not necessarily be from the beginning of the
year of assessment, as is the case with the physical presence test. It follows that a
natural person will not be liable to tax in the Republic on any income earned before
the date on which that person became ordinarily resident, and thus tax resident in
the Republic, unless that income was from a South African source.
Example 1 – Effective date for becoming “ordinarily resident”
Facts:
Z became ordinarily resident in the Republic on 1 October 2017. All amounts
received by or accrued to or in favour of Z during the 2018 year of assessment were
of a revenue nature.
Result:
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