Non-residents and interest
In this blog entry we are doing revision on non-residents and interest. This is an area where students often make mistakes. You don’t have to! It is easy to understand and score marks when looking at non-residents and interest.
Be sure to watch the video where we go through the steps and provide a suggested solution to the lecture example below.
STEPS TO FOLLOW:
If a NON-RESIDENT receives interest, follow these steps:
- Is the interest from a South African source (refer to s9(2)(b))?
It is from a SA source if:
- Paid by SA resident or
- The funds were used in SA
- Add it to Gross Income if it is from a SA source.
- Consider if it is exempt in terms of s10(1)(h).
It will be 100% exempt unless:
- The NON-RESIDENT is a natural person who physically present in SA for more than 183 days in 12 months preceding date interest is received or accrued or
- The debt is related to a permanent establishment in SA
- If it is not exempt in terms of s10(1)(h), then apply s10(1)(i).
- Only for natural persons. Remember to consider age of taxpayer.
- Then do the Withholding Tax on Interest in terms of s50B.
- Show under a separate heading. Do NOT include in your taxable income
- Remember to consider when it is exempt from withholding tax per s50D. Most important exemptions are
- If paid by SA Bank, SA Government (s50D(a))
- If non-resident is a natural person and was physically present in SA for more than 183 days in preceding 12 months (s50D(3)(a)) OR
- If it relates to a permanent establishment in SA (s50D(3)(b))
LECTURE EXAMPLE
| NON-RESIDENTS & INTEREST
Michael is a resident of Australia. He was born in South Africa to residents of the Republic but emigrated to Australia twelve years ago when he turned 22. Michael’s childhood friend, Sheila, lives in South Africa. She runs a small business. During a Skype call, Sheila told Michael that the business was experiencing cash flow problems. Michael felt sorry for his friend and offered to lend her money at a market related rate. Sheila accepted. On the last day of the year of assessment, she paid Michael an amount of R50 000 in interest. Michael earned a further R20 000 in interest from a South African bank account during the year of assessment. Michael earned R10 000 (correctly translated to ZAR) from his Australian bank account during the year of assessment. REQUIRED
In all situations, assume there is no double tax agreement. |
Make sure to consult your SAICA ITC examinable pronouncements when looking and non-residents and interest and also for the rest of your CTA topics.
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