Working from home and want to claim home office expenditure? Thinking of spending considerable time abroad and confused about worldwide taxation? Or fearful of South Africa’s potential wealth tax or basic income grants tax? Here we shed some light on these current tax considerations, and more, as well as what they mean for South African taxpayers.
Although the topic of tax and the payment thereof, is often a contentious topic among South Africans, it is a reality that taxes are an essential part of a properly functioning society. The South African tax landscape in particular is everchanging and there are certain updates that every taxpayer should be aware of.
Formal financial emigration to avoid paying double tax
There has been increasing confusion regarding whether people are liable to pay tax in South Africa if they are paying tax elsewhere in the world. However, South African tax residents are taxed on their worldwide income by the South African Revenue Service (SARS). Simply put: a person is a tax resident of a county if they are “ordinarily resident” or comply with the “physical presence test”, which requires that they are present in the country for the minimum number of consecutive days over a five-year period.
South Africa has numerous treaties with other jurisdictions for the Avoidance of Double Taxation in order to avoid tax being paid twice on the same income. If a taxpayer decides to emigrate from South Africa with the intention of living outside of the country for the foreseeable future, it is advisable to follow the formal financial immigration process provided by SARS in order to qualify as a non-tax resident in South Africa and therefore be exempt from taxation on their worldwide income.
When emigrating, it is advisable to bear in mind that a person will be deemed, by SARS, to have disposed of all their moveable assets resulting in a possible capital gains tax liability.
Once this process is finalised, a letter will be issued by SARS confirming the individual’s status as a non-tax resident according to SARS’ records. Until such time as this letter has been issued, there is still a risk of being taxed in South Africa on worldwide income.
Apprehensions regarding basic income grant (BIGs) A recent report published by Intellidex, in partnership with Business Leadership South Africa and Business Unity South Africa, submitted that there is an inevitable tax hike around the corner to fund BIGs in South Africa.
The purpose of the implementation of BIGs would be to alleviate poverty, however, the tax hike needed to fund BIGs would undoubtedly place a strain on South Africa’s economy and make it near impossible for economic growth. Intellidex expressed that BIGs would destabilise South Africa’s public finances and worsen macroeconomic performance which would, in turn, result in rising inflation. Although the purpose of BIGs is to ease the strain on the poorer members of the South African population, the impact of the inflation-induced shock by this policy could evidently do more harm than good.
Implementation of a wealth tax
The African National Congress, has continued to express its support for the implementation of a form of wealth tax to potentially fund BIGs in South Africa.
However, the Bureau of Economic Research has submitted that any form of wealth tax would only be detrimental to South Africa in that it would encourage mass emigration. The idea for the implementation of a wealth tax was first raised in 2017 and with it continuing to rally support, only time will tell whether formal policy will follow.
Appointment of responsible third parties
Section 179 of the Tax Administration Act (TAA) contains the third-party process whereby SARS can, via appointed responsible third-parties, collect any monies owed to them, be it taxpayers’ monthly salaries or even in respect of retirement payments. Accordingly, SARS can deliver AA88 Third-Party Appointment Notices to authorise and mandate relevant administrators, which includes banks and fund managers, to remove funds from taxpayers’ bank accounts and pay the funds over to SARS.
If employers fail to make these deductions, they can be held liable by SARS for the amount not paid over. The employer will only be released from this obligation if revoked by SARS or if the liability has been paid in full.
Another way that SARS can use the third-party appointment provision to recover outstanding taxes, is in respect of PAYE which is withheld from a lump sum payment of a pension fund upon an employee’s resignation from employment. SARS can mandate retirement fund administrators who oversee pension or provident fund pay-outs, to deduct the outstanding tax amount and pay it over to SARS before paying out the balance of the proceeds. The same will also apply in respect of any monthly payments received by a taxpayer from an annuity or pension payment.
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Tax benefits for employees who work from home
Although the National Lockdown looks to be firmly in South Africa’s rear-view mirror, the concept of “working from home” and “remote working” appears to be here to stay.
Section 11 of the Income Tax Act (ITA) sets out the requirements for eligibility to claim home office expenditure against remuneration. The ITA states that persons carrying on “trade” are eligible to claim the following deductions from all income derived from their trade:
• expenses and losses actually incurred, in the year of assessment, in the production of income but excluding expenses of a capital nature; and
• expenditure actually incurred on repairs to the property used for purposes of that trade and machinery, and other tools, used by the person for purposes of their trade.
However, SARS remains adamant regarding the rules to claim home office expenditure and disallowed more than 60% of the home office claims during the 2021/2022 tax year expressing that taxpayers did not qualify in terms of current legislation or were incorrect in their calculations.
The unfortunate truth is that claims can only be made in respect of actual set-up costs, and improvements directly related to the portion of the premises occupied and used solely as a home office. When submitting claims to SARS for home office expenditure, taxpayers should therefore take cognisance of the exclusionary provisions in Section 23 of the ITA.
It must be noted that SARS is not always correct when disallowing home office deductions and taxpayers have the right to dispute assessments disallowing home office expenditure through the objection and appeal process. If, after exhausting the above-mentioned avenues, SARS still refuses to concede, taxpayers should consider approaching either the Tax Board or Tax Court for relief.
Changes to the Employment Tax Incentive (ETI) Act
The ETI scheme was implemented with effect from 1 January 2014 and aimed at encouraging employers to hire qualifying employees through a cost-sharing mechanism with the Government. The scheme has a dual benefit and provides employment and training to young work seekers who would otherwise not have had the opportunity, while simultaneously reducing the PAYE liability of the employer and boosting their BEE rating.
However, in order to curb a perceived abuse of the incentive, the definition of “qualifying employee” in the ETI Act has been amended, with effect from 1 March 2022, to exclude any employee that is primarily studying while fulfilling the conditions of their employment contract during any given month. The exception to this exclusion is if the employer and their employees have entered into a “learning programme” as defined in the Skills Development Act, 1998 (SDA).
According to Section 1 of the SDA, a “learning programme” includes a learnership, a skills programme, an apprenticeship, and any other prescribed learning programme which includes a structured work experience component.
Therefore, both employers and employees should take cognisance of this change to ensure their eligibility to participate in the scheme.
As there are constant updates, it is paramount for all South African taxpayers to keep up to date regarding any changes to our tax legislation and policy to avoid falling foul of any of the provisions of the relevant tax Acts.
