SARS reserves the right to conduct further reviews of previous assessments in terms of the Tax Administration Act and with this we have observed a considerable number of instances where previous tax assessments were revised to account for the implications borne on taxpayers ceasing to be tax residents.
This revision is done in accordance with section 9H(2)(b) and (c) of the ITA.
These reassessments can result in minimal to material tax liabilities and with this, it then becomes paramount to understand the tax implications attached to the cessation of a South African tax residency.
Could You Be an Affected Taxpayer?
The latest SARS statistics show that over 51,500 taxpayers successfully ceased their tax residency between 2017 and 2024. This suggests that a significant number of expatriates may potentially be affected by the split tax return laws applicable in the year that tax residency is ceased.
For these taxpayers, the tax year is effectively divided into two assessment periods. The first period ends on the day before cessation, during which the taxpayer is taxed as a South African tax resident on worldwide income. The second period begins on the date of cessation and runs to the end of the tax year, during which the taxpayer is taxed as a non-resident only on South African-sourced income.
Benefit of SARS’ Split Tax Return Feature
Effective from 1 March 2024, SARS adopted a cessation feature to the 2025 income tax return wizard.
This feature should aid in enabling taxpayers who have obtained their non-residency confirmation letters from SARS in relation to cessations effected during the 2025 tax period and onwards to accurately account for the split tax return implications. This could also reduce instances where SARS would need to revisit the relevant assessments to account for the split tax treatment applicable to a tax period where tax residency is ceased.
Tax Obligations on Cessation of Residency
In terms of section 9H of the ITA, taxpayers who cease their tax residency during a tax year must meet specific tax obligations prior to their change in tax status. These include deemed Capital Gains Tax implications, contingent on the types of assets held at the time of cessation, as well as the hybrid tax assessment implications.
Complexities Attached to the Hybrid Assessment Period
A critical complexity in such cases relates to the treatment of the normal tax rebate under section 6(4) of the ITA. As each hybrid assessment period is less than 12 months, the tax year specific normal tax rebate must be prorated in alignment with the duration of each split assessment.
The income earned by a taxpayer during a tax period involving a split return must be allocated according to the duration and tax status of each assessment period. The first assessment must account for worldwide income under resident tax rules, while the subsequent period must consider only South African sourced income applicable to non-residents.
Tax liabilities often arise when SARS revises assessments involving a split tax return, particularly during the non-resident period. Because primary tax rebates can only be set off against tax liabilities stemming from taxable income, and most non-residents earn minimal to no South African sourced income, the prorated rebate for the second period often goes unused.
The correct completion of the income tax return requires careful consideration of the timing and source of income, as well as the appropriate application of exemptions and rebates. A proper understanding of these principles is essential to ensure compliance and to avoid unintended tax consequences in the year of cessation.
Given the technical nature of split-year tax treatment, affected taxpayers and tax practitioners who are not well-versed in these matters may benefit from the assistance of an experienced tax practitioner.
