Steven Jones recently tried to answers a tax questions without calling in the help of his tax mates at SAICA.
The link above is to his article, the corrected text, my version is posted below:
With regards to S10(1)(o)(ii), the taxpayer meets all the criteria according to Interpretation Note 16 for foreign income to be exempt; the employer is a foreign company (therefore no tax is deducted); and the taxpayer works six weeks on and four weeks off (as per their employment contract). In the four weeks off they come back to SA on leave. Is the income taxed when in SA, or is the full amount they receive tax exempt, even though they are spending time in SA during the employment contract?
Blogger’s initial comment:
First question to be asked: Is this person employed in the shipping or oil exploration industry? If so, the test is +183 days per year, no need to be continuous:
Section 10(1)(o)(i) exempts any remuneration derived by any person as an officer or crew member of a ship engaged –
aa) in the international transportation for reward of passengers or goods; or
bb) in the prospecting exploration or mining (including surveys and other work of a similar nature) for any minerals (including natural oils) from the seabed outside the Republic,
where such officer or crew member is employed on board such ship solely for the purposes of the ‘passage’ of such ship, as defined in the Marine Traffic Act, 1981 (Act No. 2 of 1981), and
if such person was outside the Republic for a period or periods exceeding 183 full days in aggregate during the year of assessment.
This subsection deals with 183 days in a tax year where as the next part deals with an exemption where the days absent is +183 days in any twelve months. The article by Steven Jones is rather vague and deals with section 10(1)(o) – which is dangerous when providing tax advice to a client.
But then he refers to the 60 day test, and now we know he is dealing with section 10(1)(o)(ii) and then goes on the refer to at least 60 days where as the act says “exceeding” 60 days.
One very expensive night Mr Jones, a very expensive night!
Technically Corrected (by blogger) of the:
Answer by Steven Jones, editor of Moneyweb’s Tax Breaks:
There is a common misconception that all income relating to foreign employment is exempt from tax. This is a throwback to the previous tax regime whereby South African tax payers were exempt from tax on income derived from a non-South African source. That all changed when South Africa’s tax system changed to a residence basis-under the new regime, anyone who is considered to be a “resident” of South Africa for tax purposes is subjected to South African tax on their world-wide income (subject to certain exemptions, one of which is the so called 183/+60 day rule)
Section 10(1)(o) of the Income Tax Act provides for certain income in respect of services rendered outside of South Africa to be exempt from tax. This section applies to remuneration paid by ANY employers yet employers based in South Africa may face PAYE risk should the employee fail all the requirements . Income paid by a foreign-based employer would be subject to South African tax based on the residence principle was it not for the s10(1)(o)(ii) exemption applying.
However, even if the income referred to in this question was paid by a South African employer to employees who render services outside of South Africa, Section 10(1)(o)(ii) requires at least one continuous period of more than [the law says exceeding where as the journo wrote at least – just not the same!!] 60 days for the exemption to be applicable to the foreign service income. This criterion may thus not have been met in this case, yet the questions states the employee met all the requirements so we can assume that the employee spent the one trip of six weeks plus the following four weeks holiday outside of South Africa.
All remuneration paid during periods where the employee is in South Africa and attending to work is subject to South African tax, yet should the employee be in SA and completely and totally on leave, his entire year’s salary may be tax exempt. SARS dictates in Interpretation Note 16 as follows:
“Where a person who has already complied with the exemption
requirements of section 10(1)(o)(ii) in a year of assessment,
spends vacation leave or sick leave in South Africa during the
same year of assessment, the remuneration received by the
person during the period of leave will continue to be exempt from
tax in terms of section 10(1)(o)(ii) to the extent that the
remuneration is attributable to the number of vacation or sick leave
days credited to the employee in respect of and during the period
of service outside South Africa under a vacation or sick leave
scheme operated by the employer that is similar to vacation or sick
leave schemes that generally prevails in the South African
business community for persons employed in South Africa.”