Another Year of Changes in Tax Laws for Expatriates

6th October 2022

Another Year of Changes in Tax Laws for Expatriates

The only constant is change, as the saying goes. Each year, new proposed amendments to the tax laws in South Africa go through the legislative process, which involves public consultation and comment before their enactment. 

As part of this process, National Treasury recently released the Draft Response documents on the 2022 Draft Taxation Laws Amendment Bill (TLAB) and the 2022 Draft Tax Administration Laws Amendment Bill (TALAB). These Draft Response documents contain a summary of the public’s comments on proposed tax law amendments as set out in the draft bills, and the responses by National Treasury in each case.

Ringing the Bell for Another Round 

This year is no different. In the 2022 Budget Review, National Treasury noted two specific amendments that were again directed at expatriates, in particular those ceasing their residency status in South Africa, and which were then proposed in the 2022 draft bills.

According to National Treasury, in the 2022 Draft TLAB:

“Paragraphs (b) and (c) of Section 9H (2) of the Act stipulates that an individual’s year of assessment is deemed to have ended on the date immediately before the day they ceased to be a tax resident in South Africa. This section further provides that the individual’s next succeeding year of assessment is deemed to commence on the day on which tax residency is ceased.”

In view of the split-year treatment applied to a taxpayer who ceases their tax residency, the proposed amendments sought to apportion the annual interest exemption (currently R23 800, if you are under 65) and Capital Gains Tax (CGT) annual exclusion (currently R40 000) based on when, during a tax year, one ceases their tax residency in South Africa. This purported to address the anomalous application of these provisions to taxpayers, who cease to be residents, over the two tax years in a twelve-month period.

Practice and Prejudice

On the apportionment of these provisions, based on split-year treatment, concerns were raised about the inability of SARS’ systems to apply this rule in practice. This was acknowledged by SARS, noting that its systems were already being updated. We will have to wait and see what this will look like on e-Filing.

Further concerns were raised by the public, regarding the apportionment of the CGT annual exclusion, as being potentially prejudicial to taxpayers, as the majority of the CGT charges will arise in the tax year (first part of the twelve-months) where they still a tax resident. This was accepted by National Treasury. 

However, the proposed amendment was not rejected outright. Instead, National Treasury adjusted its stance and noted that changes will be made in the 2022 Draft TLAB, allowing taxpayers to utilize the annual exclusion as best suits them, as long as the cumulative annual exclusion utilised during the two tax years (in that twelve-month period) does not exceed the allowable CGT annual exclusion.

It is anticipated that these amendments will be introduced from March 2023, but whether their impact will be significantly felt by expatriates ceasing residency remains to be seen. The apparent anomaly was itself an inadvertent result of the split-year treatment applied to taxpayers ceasing their tax residency and is not often seen in practice due to the current inability to correctly apply this treatment on e-Filing. 

The diligent tax advisor should consider whether the interest exemption and annual exclusion have been properly applied in respect of their clients who ceased to be residents. At the same time, perhaps expatriates should also consider their ceasing tax residency before these amendments are introduced.

Taking a Practical Approach 

Ceasing of one’s tax residency is not a simple process, and if not done correctly could lead to adverse implications. This includes the manner in which “exit tax” and applicable exemptions are navigated, which usually requires a professional hand.

It is therefore prudent to seek advice and assistance from niche experts in international tax, not only having the strong theoretical knowledge required to navigate these choppy tax legal waters, but also the necessary practical experience to ensure that the correct approach is taken, and optimal result achieved.

Written by Martin Bezuidenhout, Expatriate Tax Attorney at Tax Consulting SA