South Africans who have left the country are being hit with a nasty SARS surprise

South Africans who have ceased their tax residency are being hit with unexpected tax bills as the South African Revenue Service (SARS) revisits past assessments to apply complex split-year tax rules that many expats never knew about.

Tax Consulting South Africa senior tax consultant Tshepo Thebyane and junior tax consultant Rendani Makatu warned that this is becoming increasingly common.

Many taxpayers are unaware that changing their tax residency status during a tax year can trigger split tax return implications under section 9H of the Income Tax Act (ITA).

Thebyane and Makatu explained that SARS reserves the right to conduct further reviews of previous assessments under the Tax Administration Act.

As such, they have observed a considerable number of instances where previous tax assessments were revised to account for the implications borne on taxpayers ceasing to be tax residents.

This revision is done in accordance with section 9H(2)(b) and (c) of the ITA, and reassessments can result in minimal to material tax liabilities.

Thebyane and Makatu stressed that it is therefore paramount that current and potential expats understand the tax implications of ceasing South African tax residency.

The latest SARS statistics show that over 51,500 taxpayers successfully ceased their tax residency between 2017 and 2024.

This suggests that a significant number of expatriates may be affected by the split tax return laws applicable in the year in which tax residency is ceased.

For these taxpayers, the tax year is effectively divided into two assessment periods. The first period ends on the day before cessation, during which the taxpayer is taxed as a South African tax resident on worldwide income.

The second period begins on the date of cessation and runs to the end of the tax year, during which the taxpayer is taxed as a non-resident only on South African-sourced income.

Effective from 1 March 2024, SARS adopted a cessation feature to the 2025 income tax return wizard, Thebyane and Makatu said.

This feature should enable taxpayers who have obtained their non-residency confirmation letters from SARS for cessations effected during the 2025 tax period onwards to accurately account for the split tax return implications.

This could also reduce instances where SARS would need to revisit the relevant assessments to account for the split tax treatment applicable to a tax period where tax residency is ceased.

Why SARS is issuing surprise tax bills

Under section 9H of the ITA, taxpayers who cease their tax residency during a tax year must meet specific obligations before their change in tax status, Thebyane and Makatu said.

These include deemed Capital Gains Tax implications, contingent on the types of assets held at the time of cessation, as well as the hybrid tax assessment implications.

They noted that a critical issue in such cases is the treatment of the normal tax rebate under section 6(4) of the ITA.

As each hybrid assessment period is less than 12 months, the tax year-specific normal tax rebate must be prorated to reflect the duration of each split assessment.

The income earned by a taxpayer during a tax period involving a split return must be allocated to each assessment period based on the duration and tax status of each period.

The first assessment must account for worldwide income under resident tax rules, while the subsequent period must consider only South African-sourced income applicable to non-residents.

Tax liabilities often arise when SARS revises assessments involving a split tax return, particularly during the non-resident period.

Primary tax rebates can only be set off against tax liabilities stemming from taxable income, and most non-residents earn minimal to no South African-sourced income.

As a result, Thebyane and Makatu explained that the prorated rebate for the second period often goes unused.

They stressed that completing the income tax return correctly requires careful consideration of income timing and sources, as well as the appropriate application of exemptions and rebates.

“A proper understanding of these principles is essential to ensure compliance and to avoid unintended tax consequences in the year of cessation,” they said.