Residence status and its implications on income and capital gains tax.

Abstract

As the international markets opened up it became imperative that the for South African taxation system be brought into line with those of its major trading partners whose tax systems are residence based. For South Africans the change to a residence base and the introduction of Capital Gains Tax in 2001 drastically altered the previous source-based tax playing fields. The purpose of this research is to investigate all aspects of residence and its effect on natural persons as well as other legal personae and to discuss how the various forms of income are affected by the new tax dispensation. The position in other fiscal dispositions is also scrutinised to give the reader a more comprehensive understanding of residence-based taxation as applied by some of South Africa's major trading partners. For foreign nationals residing in South Africa, the new system has also had its negative impact. Previously, their foreign earnings were free from local tax because of the old source base system, but this has also changed. The South African legal system is also thoroughly canvassed regarding two important concepts, namely, "resident" and "ordinary resident" and what are meant by them in terms of tax law. These concepts have also enjoyed the scrutiny of the other fiscal dispensations legal systems reviewed. Residence tests to determine the tax status of a person in South Africa and in other fiscal dispensations are investigated in this study to give anyone wishing to emigrate to other climes, a better understanding of what they can expect from a taxation point of view from the fiscal authorities there. The impact of residence on most forms of income is discussed including that of foreign workers and on other legal entities such as companies, while Capital Gains Tax, and the importance of residence on this tax is also canvassed by this study. The study concludes with a review of the standard Double Tax Agreement concluded by South Africa with most other countries and lists those countries with which it has such agreements.