In search for opportunities abroad, many South Africans have taken to the seas. It might not be the same as working in a new country, but it offers a change of scenery while earning a foreign income. Working on a rig, a yacht or a cruise ship is not for the faint-hearted, though. Long hours, physically demanding work and diverse groups of people confined to narrow spaces are some of the challenges you can expect to face. However, it is also an adventure filled with memories to revisit for years to come.
Like all things expatriate, seafarers encounter rough seas as soon as they start evaluating their financial matters. When the time comes for them to submit their annual tax returns, there are many concerns or grey areas that come to light. Here are a few grey areas that often leave taxpayers scratching their heads.
The importance of an employment contract
It’s not uncommon for two South African citizens to stand side-by-side on the same vessel and have different tax obligations. There are many factors that could impact the way your sea-based earnings are taxed. Essentially, your tax responsibility depends on the type of vessel you are on and the position you hold on that vessel.
For instance, according to section 10(1)(o)(i)(bb) of the Income Tax Act 58 of 1962 (the Act), when an officer or crew member is solely employed for the purposes of navigating a vessel that will be used for prospecting, exploring or mining of minerals from the seabed outside of SA, they will be exempt from paying tax on their foreign earnings. If the officer or crew member’s job description does not form part of the navigation of a vessel, this exemption will not apply to them. They might still qualify for exemption on their foreign earnings under section 10(1)(o)(ii), provided they meet the requirements listed under that section.
Due to the complex nature of seafarer taxation, it is of paramount importance to understand the intricacies of your employment contract prior to setting sail.
Consulting an immigration or tax professional in the early stages of negotiating a contract of employment could keep the tax pirates from raiding your foreign loot.
Understanding the days requirements
The Act states that individuals who spend more than 183 days in aggregate and a continuous 60 days outside of South Africa, are exempt from paying tax on the first R1.25 million foreign income earned. Because of the Covid-19 pandemic, the South African Revenue Services (Sars) realised that global travel restrictions would make it difficult for those abroad to qualify for the 183-day requirement.
In the Taxation Laws Amendment Act (TLAA) of 20 January 2021 they reduced the 183-day requirement to 117 days, exclusively for the 2021 year of assessment. This means that taxpayers who spent more than 117 days outside South Africa may still qualify for the seafarer exemption (section 10(1)(o)(i)(aa) & (bb)) without the 60 consecutive days requirement being met.
Apart from the days requirement, should a taxpayer not meet the overall requirements for the seafarer exemption, they may be able to claim the standard section 10(1)(o)(ii) exemption where both the 117 days and the 60 consecutive days requirements, with all other factors considered, are met.
Clarity on gross taxable income received
One of the biggest stumbling blocks for taxpayers, is the notion of income. Not only do they misinterpret what is meant by gross taxable income, but they discover too late that the burden of proof rests on them to prove their income to Sars.
The term “gross income” is largely defined in section 1(1) of the Act as the total amount, in cash or otherwise, received by or accrued to a resident during a year of assessment which is not of a capital nature. In addition, paragraph (c) of the definition of the term “gross income” specifically includes “any amount, including any voluntary award (allowances, gratuities, etc), received or accrued in respect of services rendered or to be rendered.”
It is vital for seafarers to keep record of any income received or accrued.
This may include pay or salary slips, bank statements, employment letters, contracts, etc. The nature of your employment might make it challenging to keep record of everything that takes place on a vessel. For example, if you are a waitress on a cruise ship, it might seem impossible to track your own tips. Whether you are a barman, part of the cleaning crew on a yacht or a geologist on a rig, you must be vigilant in keeping track of any income generated.
Lambert Roberts, expatriate tax team manager at Tax Consulting SA.