JOHANNESBURG – In this tax column, Tertius Troost, chartered accountant and tax consultant at Mazars, answers a reader’s question about his tax liability.
Q: I would like to know if I am liable to pay interest tax if I am based abroad but have earned interest at South African banks. I am a South African and have earned interest on savings above the R 23 800 exemption, but I am confused about the exemption on non-residents.
I was out of the country for more than 270 days as I am working in Ghana and do not have any other taxable income in South Africa.
- The account is called Primesaver from Investec and I earned interest on the money I have been saving
- I am able to withdraw money from the account at any point but I don’t normally do that
- I earned R 78 811 in interest from this account in the tax period
- I am 37 years old
- I invested money in the tax-free accounts during 2015/16 but this is not included in the amount mentioned above.
The question relates to the tax year ending February 29 2016.
A: Apart from flip phones, Pokémon, and Westlife, the early 2000s also brought far-reaching tax changes in South Africa, specifically the change from a sourced-based system of taxation to a residence-based (or world-wide) system of taxation. Whereas previously an individual would only be subject to tax on South African source income, the change has the effect that the residency status of an individual would determine his/her tax liability. Accordingly, the crux of your question revolves around your tax residency.
A ‘resident’ is defined in the Income Tax Act (the Act) as inter alia a natural person who is ‘ordinarily resident’ in South Africa, or who meets the requirements of the physical presence test. The term ‘ordinarily resident’ is not defined in the Act and it has been left to South African courts to interpret its meaning. Without resorting to a long-winded discussion it would suffice, for present purposes that a person’s ordinarily residence would be the country to which he would naturally and as a matter of course return from his wanderings. It is described as a person’s real home (i.e. the place where he normally resides apart from temporary or occasional absences).
The fact that you refer to yourself as a South African, indicates that you regard yourself as ordinarily resident in South Africa. For this reason you will need to include your world-wide receipts and accruals as gross income. The interest earned in South Africa will, therefore, be subject to tax in South Africa. The South African interest exemption (section 10(1)(i)) will be applicable and tax will be payable on the difference between the interest earned and the exemption (i.e. R 78 811 less R 23 800 = R 55 081). The interest exemption provided by section 10(1)(h) is only available to non-residents. It will therefore not apply to your scenario, since you are a South African resident for tax purposes.
In conclusion, since you will be regarded as a resident for South African income tax purposes, you would need to include your world-wide receipts and accruals as gross income. By utilising the interest exemption pursuant to the application of section 10(1)(i) you will be able to reduce your taxable income by R 23 800.
So, even if you support The Black Stars, your tax money will still be made available to Bafana Bafana.