“This could lead the taxpayer to believe they must redo the entire non-residency status process, which is quite unnecessary,” says Thomas Lobban, Legal Manager, Cross-Border Taxation at Tax Consulting South Africa. After a thorough investigation, they could find that all the required steps have been successfully completed, and only their SARS system residence status needs to be updated.
However, this becomes especially tricky if an ill-informed or unscrupulous tax advisor uses this disparity to their advantage, assuring the taxpayer that they will need to apply from scratch, at similar or extra cost to themselves.
Identifying the best advice
Without a professional understanding of the process, how can the taxpayer decide if they are being genuinely assisted or led on an expensive wild goose chase?
“A diligent tax advisor will perform a thorough diagnostic to ascertain if your tax residency status is merely incorrect on the system or the non-residency declaration process needs to be undergone, and they should be able to request and / or compile an audit trail of the evidence to that effect, rather than one or two cursory validations before providing a view on the matter,” says Lobban.
For example, a persisting ‘resident’ status on the SARS system may be nothing more than an administrative error. Or, suggesting that the reflected status is due to the taxpayer not having undertaken a residency cessation process and paid exit tax is tenuous, especially if no exit tax was due.
So, if only a superficial check is performed and conclusions are drawn on the bare minimum of evidence, rather than an inquiry into the entire process behind the application, the taxpayer should be concerned. This is especially true if a slim review is accompanied by an elaborate and expensive solution, such as restarting the process.
More so if the taxpayer underwent the formal cessation of their tax residency and was previously issued with a tax clearance PIN or certificate by SARS, and duly paid their exit tax if any was due.
Another red flag is if the taxpayer is offered a legal opinion on their residency status without proper justification of the use-case thereof. “Tax residency cannot simply be ceased by issuing a legal opinion, as further steps are required; one must follow the formal processes laid out by SARS, providing the documentation and other objective evidence it demands,” he says.
A second opinion
“If you know or have a gut feeling that the remedy is excessive, it may be time to seek a second opinion,” says Lobban. According to him, taxpayers in this position should prefer a solution based on a thorough diagnostic that is well-supported and that starts on the conservative side of the spectrum. This should be followed by a rational roadmap for the taxpayer, which canvasses the steps to be taken – from the beginning to the end of the engagement.
Regardless of the tax advisor consulted, a taxpayer should also enquire about and obtain a SARS Tax Non-Resident Confirmation letter, which is only issued where the taxpayer has successfully undergone the correct non-residence process.