Residency Lecture slides
Prescribed readings
Silke 2025 – Chapter 3.1; Chapter 3.2; Chapter 3.2.1 and Chapter 3.2.2
Gross Income definition – section 1 of the
Income Tax Act
“gross income”, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in
favour of such resident; or
(ii) in the case of any person other than a resident, the total amount, in cash or otherwise, or in
favour of such person from a source within the Republic, received by or accruedto
during such year or period of assessment, excluding receipts or accruals of a capital nature, but
including, without in any way limiting the scope of this definition, such amounts (whether of a capital
nature or not) so received or accrued as are described hereunder………
• In the case of a resident, a resident is taxed on their worldwide receipts and accruals (not ofa
capital nature);
• In the case of a non-resident, a non-resident is only taxed on their receipts and accruals from a
South African source (not of a capitalnature);
Paragraph 2 of the Eighth Schedule – Capital
Gains Tax
• Whenever a resident disposes of an asset (the asset could be outside South Africa) that resident will
be subject to capital gains tax on the disposal of that asset;
• However, if a non-resident disposes of an asset, a non-resident will only be subject to capital gains
tax on that asset if
• It is immovable property situated in SouthAfrica;
• For information purposes only – will be covered again in the lectures on capital
gains tax in week 10 in lectures;
Other taxes impacted by residency
• Section 54 of the Income Tax Act
• Only donations made by “residents” are subject to donations tax;
• Certain withholding taxes apply when the recipient is not a resident;
• Withholding taxes in interest;
• Withholding taxes on the sale of immovable property in South Africa;
• Withholding taxes on royalties;
• Withholding taxes applying to foreign entertainers and sportspersons;
• The primary focus of the CTAA021 course is on taxpayer’s that are
resident in South Africa;
So how do we establish whether a natural
person is resident or non-resident?
• Section 1 of the Income TaxAct:
• “resident” means any—
• (a) natural person who is—
• (i) ordinarily resident in the Republic; or
• (ii) not at any time during the relevant year of assessment ordinarily resident in the
Republic, if that person was physically present in the Republic—
• (aa) for a period or periods exceeding 91 days in aggregate during the relevant
year of assessment, as well as for a period or periods exceeding 91 days in
aggregate during each of the five years of assessment preceding such year of
assessment; and
• (bb) for a period or periods exceeding 915 days in aggregate during those five
preceding years of assessment,
In summary:
A natural person is either resident as a result
of being:
• Ordinarily resident in the Republic or
• As a result of meeting the physical presence test
• Being physically present in the Republic for period exceeding 91 days in this year of
assessment; AND
• Being physically present in the Republic for a period exceeding 91 days in each of the
previous 5 years of assessment; AND
• Being physically present in the Republic for a period exceeding 915 days in aggregate in
those previous 5 years of assessment.
So when is a natural person ordinarily
resident in the Republic?
• Case Law provides the guidance:
• Cohen v CIR
• Facts of the case
• Taxpayer was resident in South Africa but travelled overseas to work for his employer;
• The taxpayer lived overseas for a period of 20 months;
• The taxpayer did not return to South Africa during this period;
• The court was required to determine if the taxpayer was ordinarily resident in South
Africa during the period the taxpayer lived overseas;
Cohen v CIR judgement
• Judge Schreiner JA stated:
“If, though a man may be “resident” in more than one country at a time, he can
only be “ordinarily resident” in one, it would be natural to interpret “ordinarily”
by reference to the country of his most fixed or settled residence… his ordinary
residence would be the country to which he would naturally and as a matter of
course return from his wanderings, as contrasted with other lands it might be
called his usual or principal residence and it would be described more aptly
than other countries as his real home.
So when is a natural person ordinarily
resident in the Republic?
• Case Law provides the guidance
• CIR v Kuttel;
• Facts of the case
• The taxpayer emigrated from South Africa after having obtained a permanent residence
permit in a foreign country;
• In the foreign country, the taxpayer and his family established a home, opened bank
accounts, bought a car and registered for social security;
• The three children remained in South Africa to complete their schooling but later moved to
the foreign country to join their parents;
• Later the family became citizens of the foreign country;
• Owing to exchange control regulations in South Africa at the time, the taxpayer continued to
own the family home in South Africa;
• During the period under review, the taxpayer spent one-third of his time in South Africa with
the time in South Africa becoming progressively less.
CIR v Kuttel judgement
• Judge Goldstone JA stated:
“a person may have more than one residence at any one time is clear. In the
present case we are concerned with the words ‘ordinarily resident’. [Ordinary
residence] is something different and, in my opinion, narrower than just
‘resident’.”
“I can find no reason for not applying their natural and ordinary meaning to the
provisions now under consideration. … I would respectfully adopt the
formulation of Schreiner JA and hold that a person is ‘ordinarily resident’ where
he has his usual or principal residence, ie what may be described as his real
home.”
SARS Interpretation Note 3 (Issue 2)
Factors to consider in assessing if a natural person is ordinarily resident in South Africa are:
• An intention to be ordinarily resident in the Republic
• The natural person’s most fixed and settled place of residence
• The natural person’s habitual abode, that is, the place where that person stays most often,
and his or her present habits and mode of life
• The place of business and personal interests of the natural person and his or her family
• Employment and economic factors
• The status of the individual in the Republic and in other countries, for example, whether he
or she is an immigrant and what the work permit periods and conditions are
• The location of the natural person’s personal belongings
• The natural person’s nationality
• Family and social relations (for example, schools, places of worship and sports or social clubs)
• Political, cultural or other activities
• That natural person’s application for permanent residence or citizenship
• Periods abroad, purpose and nature of visits
• Frequency of and reasons for visits
Date when an Individual ceases to be
ordinarily resident?
The residency definition in Section 1 states:
“Provided that where any person that is a resident
ceases to be a resident during a year of assessment, that
person must be regarded as not being a resident from
the day on which that person ceases to be a resident.”
To recap:
A natural person is resident as a result
of being:
• Ordinarily resident in the Republic or
• As a result of meeting the physical presence test
• Being physically present in the Republic for period exceeding 91 days in this year of
assessment; AND
• Being physically present in the Republic for a period exceeding 91 days in each of the
previous 5 years of assessment; AND
• Being physically present in the Republic for a period exceeding 915 days in aggregate in
those previous 5 years of assessment.
in which case that person will be a resident with effect from the first day of that relevant year of
assessment:
SARS Interpretation Note 4 (Issue 5) Example
3 (updated)
Y who is not ordinarily resident in the Republic, was physically present in the
Republic for the following number of days:
Year of assessment Number of days
2020 113
2021 147
2022 208
2023 202
2024 305
During the 2025 year of assessment, Y was physically present in South Africa for
108 days.
Determine whether Y is regarded as a resident under the physical presence test for
the 2025 year of assessment.
SARS Interpretation Note 4 (Issue 5) Example 3
Solution updated
(i)Y was physically present in South Africa for more than 91 days in the current
year of assessment, 2025 (108 days).
(ii)Y was physically present for more than 91 days in 2020 (113 days), 2021 (147
days), 2022 (208 days), 2023 (202 days) and 2024 (305 days).
(iii)Y was physically present for a period exceeding 915 days on aggregate during
those preceding 5 years of assessment (113 + 147 + 208 + 202 + 305 = 975 days).
Y is resident in South Africa for the 2025 year of assessment.
Even though Y was only physically present in South Africa for 108 days in the
2025 year of assessment Y will be resident in South Africa from the first day of
the year of assessment that he or she became resident, that is, 1 March 2024.
Proviso’s to physical presence test
(A) a day shall include a part of a day, but shall not include any day that a
person is in transit through the Republic between two places outside the
Republic and that person does not formally enter the Republic through a
“port of entry” as contemplated in section 9 (1) of the Immigration Act,
2002 (Act No. 13 of 2002), or at any other place as may be permitted by the
Director General of the Department of Home Affairs or the Minister of Home
Affairs in terms of that Act; and
(B) where a person who is a resident in terms of this subparagraph is physically
outside the Republic for a continuous period of at least 330 full days
immediately after the day on which such person ceases to be physically
present in the Republic, such person shall be deemed not to have been a
resident from the day on which such person so ceased to be physically
present in the Republic;
So how do we establish whether a company, close
corporation or trust is resident or non-resident?
• “resident” means any—
(b) person (other than a natural person) which is incorporated, established or
formed in the Republic or which has its place of effective management in the
Republic,
• That means if a company, close corporation or trust is incorporated, established or formed in
the South Africa, or the place of effective management is in South Africa, those entities are
automatically resident in the SouthAfrica;
• What about a company or trust that is not incorporated, established or formed in the South
Africa for example a foreign company or a foreign trust?
• The foreign company or foreign trust will only be resident in South Africa if its place of
effective management takes place in SouthAfrica;
A final sentence at the end of resident
definition in Section 1
“but does not include any person who is deemed to be exclusively a resident of
another country for purposes of the application of any agreement entered into
between the governments of the Republic and that other country for the avoidance
of double taxation”
What does this mean?
Double Tax Agreements
• SouthAfrica has entered into Double TaxAgreements with several countries;
• Tax treaties must be read together with the Income TaxAct;
• However, if there is a conflict between the Income TaxAct and the Double Tax
Agreement, according to case law a Double TaxAgreement takes precedence.
• It follows, even if a company or a trust was
• incorporated or
• established or
• formed
in South Africa (and therefore could be resident in South Africa) a Double Tax
Agreement may provide that if the effective management of that company takes
place in that foreign country, the company is deemed to be exclusively resident in
that foreign country. In that case that company, could not be resident in South
Africa and would considered to be resident in the foreign country;
Test and exam technique
• If the residency principle is not being tested, the question will state that a
taxpayer is either resident in South Africa or not resident in South Africa.
• In the absence of an explicit statement that a taxpayer is either resident or
not a resident, you may need to determine the residency status of a
taxpayer;
• For tests and exams in determining the residency status of a taxpayer
• Information could be provided to assist you determine if the taxpayer is ordinarily resident;
• the number of days that a natural person is in South Africa will be provided; and
• the place of effective management of a company or trust will be stated;
• Using the available information then determine the residency status of the
taxpayer using the normal rules in the “resident” definition;
• However, as a last step check if a double taxation agreement applies which
causes the place of residency of the person to be determined by the
double taxation agreement.
References
• Silke: South African Income Tax 2025;
• Income Tax Act No. 58 of 1962;
• SARS – Interpretation Note 3 Resident: Definition in relation to a
natural person – ordinarily resident (Issue 2);
• SARS – Interpretation Note 4 Resident: Definition in relation to a
natural person – physical presence test (Issue 5);
