Many South Africans immigrating are unaware that the month they leave South Africa has a significant impact on their tax obligations, says William Louw, tax director at Sable International.
Louw said that if you emigrate, you should ensure that the South African Revenue Service (SARS) no longer sees you as a South African tax resident unless you are still earning income in the country from South African sources.
"This change in tax status, known as tax emigration, is reported to SARS on your tax return for the period you left South Africa," he said.
"Your tax charges are retroactive and can vary significantly depending on how much of the tax year you spent out of the country."
Income tax and emigration
Under South African tax law, your monthly income tax is based on the assumption that you work for the same salary all year round.
“At the end of the tax year, any tax that you overcharged will be refunded to you. For example, if you have had months when you were unemployed or stopped working in South Africa. "
"This means that if you emigrate late in the tax year you will get a minimal refund for the months you did not work. However, if you leave early in the tax year and have only a few monthly salaries throughout the tax year, you can request a much larger refund. "
While a big refund is never wrong, Louw said the amount you earn for the year also determines your tax bracket, which has a bigger impact on other tax burdens.
How capital gains taxes are affected
If you change your tax status, it is assumed that you have sold your worldwide wealth from your local self to your foreign self on the day you leave South Africa. This triggers a Capital Gains Tax (CGT) event sometimes referred to as an "exit tax".
“CGT is a tax on the profit you make on the sale of an asset. The difference between South African capital gains tax and many other tax jurisdictions is that in these countries the CGT is a lump sum with certain exceptions.
"In South Africa, some of your capital gains will be added to your other income for that year and that amount will vary from 7.2% to 18% depending on your tax bracket," said Louw.
He said it makes sense for you to leave at the beginning of the tax year to make sure you are in the lowest possible tax bracket. The more you earn, the bigger the impact a few extra months in South Africa during the tax year can have, he said.
"South African real estate is always subject to the CGT when it is sold, whether or not you are taxable in South Africa at the time.
“This is something to keep in mind if you are planning to sell a property in the same tax year you leave South Africa as you may be paying CGT on all of your assets together.
"However, if you sell in the next (or previous) year, instead add the profit to that year's taxable income."
Exclusion of the main residence
Your home, or the place where you live with your family for most of the year, is exempt from CGT up to a threshold of R2 million.
But what if you sell your home after you leave the country? Can it still be considered your primary residence if you no longer live there?
"Many South Africans are unaware of the special allowance for taxpayers who change their location and are still trying to sell their old home, which can show that they tried to sell their primary residence before they left.
"If you put your house on the market before you go, it can still be considered your primary residence for two years even if you rent it out as long as it stays on the market," Louw said.
To take advantage of this exemption and save on taxes, Louw said that you are not allowed to rent out the property before your departure as it is no longer your primary residence.
"You only get a portion of the R2 million exemption if it was your primary residence when the CGT event is triggered when you leave."
Understand taxes in your new home
Before you leave, you should also seek advice on when your new country will see you as a tax resident and what obligations you might have, Louw said.
South Africa has double taxation treaties with a large number of countries that affect the tax rights each country has towards taxpayers.
"These agreements are designed to ensure that you are not unduly taxed in either country. However, it can be confusing to navigate."
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