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A tricky tax dilemma for South Africans living overseas

A tricky tax dilemma for South Africans living overseas
Illustrative image: If you are a South African taxpayer, you will be taxed on your worldwide income, regardless of where you live Illustrative image: If you are a South African taxpayer, you will be taxed on your worldwide income, regardless of where you live. (Adobe Stock | Waldo Swiegers / Bloomberg / Getty Images)

Leaving South Africa without formally emigrating can lead to tax issues with SARS, even after 10 years.

Question: We left South Africa 10 years ago and eventually ended up in Canada, where we now live. We never officially emigrated. Will this cause problems in years to come?

Answer: Many people leave SA to work abroad. What was originally an adventure to get some offshore experience often becomes a permanent arrangement. As they did not intend formally emigrating when they initially left the country, they are still registered with the South African Revenue Service (SARS).

If you didn’t inform the authorities of your intention to live elsewhere, SARS will still regard you as a South African taxpayer, even though you have been in Canada for 10 years.

If you are a South African taxpayer, you will be taxed on your worldwide income, regardless of where you live. This is important to bear in mind, especially if there is no double taxation agreement in place between South Africa and the country you are currently residing in.

In the past there was a formal process called financial emigration. This was replaced a couple of years ago  with a new concept of being “ordinarily resident”. SARS takes various factors into account when it comes to determining if you are ordinarily resident in a country. These would include:

  • Where you work;
  • Where you stay; and
  • Where your family and social relationships are based.

In essence, it is the place that you call home. In your instance, it would be Canada.

You would need to notify SARS that you are no longer ordinarily resident in South Africa and that you should be deregistered as a taxpayer. This will have consequences.

Up to date

I suspect that you have not submitted any income tax returns over the past 10 years. These may be required in order to bring your tax affairs up to date. Under normal circumstances, if you have been paying taxes in your new country, there’s a good possibility that you will just have to submit nil returns via eFiling, as there is probably a double taxation agreement in place with South Africa.

Capital gains tax

Breaking your South African residency will trigger capital gains tax (CGT) on the day before you cease to become ordinarily resident. You will have to pay CGT on all your assets excluding immovable property on the day before you broke your South African residency. 

They will treat you as having sold all your assets and levy CGT as if you had sold all your assets. Your worldwide assets excluding immovable property could also fall into this net, so it would be advisable that you speak to a tax lawyer before taking this step.

Once this has been done, you will cease to be a South African taxpayer and will no longer be liable for South African taxes or estate duties.

So, to answer your question, if you have no intention of coming back to South Africa, it may simplify matters if you notify SARS that you are no longer ordinarily resident. However, there is that CGT issue that will have to be dealt with, so you should get a professional to do some preliminary calculations. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected]

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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Comments - Please in order to comment.

  • Johan Buys says:

    The date of the person ceasing to be a tax resident in SA is key. Hard to say on given facts, but it seems to be a decade ago that they ceased to be ordinarily resident in SA and other than deemed CGT at that time, they would not have an SA tax residency obligation since then.

    A large number of youngsters pack suitcases and leave before having accrued any meaningful deemed CGT liability.

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