Close the door on your tax residency – deactivate your South African tax number

South African tax number deactivation

Once you have completed your final tax return for your South African-sourced income and received your non-residency letter from SARS, you should deactivate your tax number. This tells SARS that you no longer have any taxable assets or income streams from South Africa and therefore do not need to file a tax return until something changes.

Here are a few reasons this is a good idea.

1. Difficulty proving tax status over time

The more years that go by, the more difficult it becomes to prove that you have tax emigrated in the past, because you may:

Have trouble supplying the documents required by SARS

The longer you wait before deactivating your South African tax number, the more difficult it will be to obtain documents from the relevant authorities. The sooner you close the door, the easier the process will be.

Need tax residency certificates from multiple tax offices

You may need to backdate your tax emigration if you failed to report it at the time you first left South Africa.

If you want to backdate your tax emigration, you must not only prove that you are no longer tax resident in South Africa, but you must also provide proof of every place where you have lived and been tax resident.

For example, if you relocate to New Zealand, then Portugal and finally settle in the UK, you’ll need tax residency certificates from each country.

Certain countries don’t give tax residency certificates if you lived there more than five years ago and SARS will only backdate your return as far as you can prove.

2. Less certainty about the assets you had at the time of exit

When you change your tax residency status, you're deemed to have sold your worldwide assets from your local self to your foreign self, on the day you left South Africa. This triggers a capital gains tax (CGT) event, which is sometimes called “exit tax”.

You are required to report and pay an exit tax on your South African-sourced income on the day your tax status changes.

If you deactivate your tax number long after you have left, it becomes more difficult to prove what assets you had at the time of your departure and this leads to uncertainty as to whether the correct exit tax has been paid.

See also: Want to take your RA out of SA? How to prove foreign tax residency

3. You don’t want to end up with incorrectly raised administrative penalties

If SARS believes you are still active, it may presume returns are still required. This will result in unnecessary administrative penalties. SARS may notice transactions on your account and issue an estimated assessment based on them – like capital gains tax. This would then trigger a penalty demand or cashflows into your SA bank account.

Capital Gains Tax (CGT)

This is a tax on the profit made when you sell (or 'dispose of') an asset that has increased in value.

Disposal of an asset entails:

• selling it
• giving it away as a gift or transferring it to someone else
• swapping it for something else
• getting compensation for it

If you are a South African tax resident, you are liable for CGT on assets located in and outside South Africa. Non-residents are generally only liable for CGT on immovable property in South Africa.

If SARS thinks you owe CGT, it has the authority to approach the tax office in the country where you currently reside and inform them that they believe you owe money. The offices are likely to join forces and conduct a joint investigation, putting you at a disadvantage. By deactivating your South African tax number, you are denying them the opportunity to do so.

The main associated risk is that because SARS prepopulates tax returns with information from third parties, this information may be pre-populated on your individual tax return and 'auto assessed' by SARS. This results in a tax or tax return being due when it should not be.

See also: Emigrating from South Africa? Here’s your ultimate tax emigration guide

4. What does the future hold for SARS?

SARS is working on creating a system whereby if you can demonstrate that you have tax emigrated and no longer have an active tax number, a living annuity originating from a provident fund or pension in South Africa will be paid to you directly offshore without the need for you to reactivate your tax number and obtain a tax clearance on an annual basis. This system, however, is still in the works, but it is something to keep in mind for future use by holders of SA living annuities where no objections are required under a DTA.

5. Future changes: eFiling

As SARS transitions to prepopulated estimates and returns, having an active tax number that you are not monitoring puts you at risk. If SARS does an update that accidentally triggers something on your SA tax return and you do not notice it, SARS may contact you and the tax office in the country where you work in the future to try to collect taxes that are incorrect.

This will make both tax offices aware of your tax affairs, which is never good. The country of residence will probably want to know why SARS assumed this and will dig through your tax returns, while you will have to prove to SARS that you should be liable for these taxes (assuming that you are not). This will be more difficult because this event is likely to occur about 12 months after the SARS assessment.

Close the door on South African tax

Deactivating your tax number is a way to make your life easier. If you tax emigrate and then deactivate your tax number, you have effectively closed and locked the door. SARS cannot open it again in the future, but you still can if you ever need to.

If you have already left South Africa, it is not too late to deactivate your tax number. We provide comprehensive tax services and advice for South Africans at home and abroad and anyone with South African income. Get in touch with us at taxsa@sableinternational.com or give us a call on +27 (0) 21 657 1517.