Abroad with no tax returns

WORLD-WIDE WANDERER: WHAT HAPPENS ON HIS RETURN?

Brian Butchart, CFP® professional, and Managing Director Brenthurst Wealth, advises a mother whose son in Hong Kong hasn’t filled in SA tax returns for nine years.

Q: My son, working in Hong Kong for nine years, has remitted R3 million to build a property here. He has not emigrated formally and has not submitted any tax returns to the South African Revenue Service (Sars) for nine years. In 2008, he requested his tax practitioner contact Sars to terminate his tax number. He was under the impression all was in order. He has a bank loan of R3 million in South Africa, against a property worth R6 million. He tried to repatriate some of the funds to Hong Kong but Sars would not issue a clearance certificate. He also could not invest the R2 million offshore without tax returns for the last nine years. He has a Hong Kong passport and has relinquished his South African residency and citizenship.

How will his property investment in South Africa be treated? Will his funds be blocked in South Africa forever?

Answer: Sars views all this as “world-wide wanderings” with the intention to return to South Africa at some stage. The fact your son purchased a property in South Africa while in Hong Kong reaffirms this.

Our common law suggests you are “ordinarily resident” in the place you would regard as your permanent “home” – the place you would tend to return to after your wanderings. If you left with the intention to eventually return, you would still be “ordinarily resident” subject to world-wide tax in South Africa.

Fortunately, foreign earnings will be exempt from taxation in SA provided you are overseas for more than 183 days. All other income and capital gains would be subject to taxation in South Africa, even if taxed elsewhere. You will avoid double taxation only if the country in which you live has a Double Tax Agreement with South Africa.

Although your son has been earning in Hong Kong for the last nine years, he is still registered as a taxpayer at Sars and remains obliged to submit tax returns annually, and would only become a non-resident taxpayer once he formally emigrates.

As he has an asset in SA (the property he purchased), I suggest he remains a taxpayer to allow flexibility to move these assets at a later stage.

South Africa’s exchange controls allow taxpayers to transfer up to R10 million per annum offshore with a tax clearance certificate and R1 million per annum without tax clearance. So your son can move R1 million out of the country every year.

Any amount above R1 million requires a Sars tax clearance. Your son could simply submit nil tax returns for every year, bringing his tax returns up to date which in turn should solve his problem and to ensure Sars issues the required tax clearance certificate for his offshore investment.

Once he has brought his taxes up to date, he should be granted the tax clearance.

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