Optimum Tax Services

Optimum Tax Consulting (Pty) Ltd opened for business on 1 July 2019. The business was strategically placed to add value to the current scope of offerings from the Optimum Group.

The target market is primarily the individual clients of Optimum.  Optimum Tax Consulting (Pty) Ltd offers a service to assist clients with the completion and submission of their tax returns, as well as advice in terms of personal tax structuring and various other related subjects.

The business had a good turnout for the first tax season and we would like to thank our clients for the support. We are fully geared to be of service to much more clients and hope to more than triple the base in 2020.

The subject on which we had by far the most inquiries on, was the proposed changes to the exempted part of foreign income earned by South African residents. In summary, a South African resident is taxed on worldwide income. In terms of section 10(1)(o)(ii) of the Income Tax Act 58 of 1962, the resident may qualify for an exemption in terms of the income earned while rendering services outside the borders of South Africa, but subject to certain conditions.

The 5 main qualification criteria are the following:

1. Type of remuneration received – the remuneration received must fall within the scope set in the act.

2. Employment relationship – the exemption will only apply if an employment relationship exists. Independent contractors and self-employed persons are excluded under the exemption. Furthermore, a director is seen as a holder of office and not an employee. The part of remuneration that is in the form of directors’ fees will also not qualify for the exemption.

3. Services rendered – the remuneration must be received in respect of services rendered. Amounts paid that do not relate directly to services rendered are excluded from the exemption. This includes payments for relinquishment, termination, loss, repudiation, cancellation, and variation of any office or employment.

4. Outside the republic – to qualify for the exemption the services must be rendered outside the Republic of South Africa. It is important to make sure what the definition of the borders of the Republic is.

5. Days test – the final criteria to be met for the exemption would be the physical presence test. In order to qualify the person must be in employment outside of South Africa for at least 183 full days during any 12-month period. It does not have to be consecutive. There is however an additional requirement that services had to be rendered outside the republic for 60 consecutive days in the same 12-month period that was used to determine the 183 calendar days. According to the contract of employment, there may also be an apportionment of the days worked which can reduce the exemption if it is not correctly stipulated in the employment contract.

The biggest change from 1 March 2020 going forward is that there will be a monetary limit to the exemption in so far that only the first R1 million will in future be exempted, given that all the other criteria of section 10(1)(o)(ii) are met. The balance of earnings over R1 million would be subject to taxation at normal tax tables as if the money was earned inside the Republic. There are however certain reliefs offered on double taxation in terms of section 6quat of the Income Tax Act.

If you require advice on any of these subjects or on the administration of your tax affairs please contact us by sending an e-mail to tax@optimumgroup.co.za

By Francois Smit – Optimum Tax Consulting