SA / Australia Tax Consultant

[hithere]

Hi,

 

Can somebody please recommend a tax consultant based in JHB that knows SA / Australia tax system.

We have been granted 189 visas. We may need to keep a business running in SA when we emigrate. We have questions on how this would potentially work in terms of double taxation / new tax laws coming in?

 

Thank you

[Shampoo]

Try to contact the in house tax expert Hugo2 on this forum. He lives in SA but is probably the best in his field of Cross Border Tax. If you still have problems then PM me and I will give you his email address. 

[SandraDee]

One 'current' law that you will need to keep in mind when keeping your business is that once you take up residency in another country you trigger a cgt event on your business. You are treated the same way as if you 'sold' your asset, even if you havent!  Double taxation is not really an issue. You pay your usual tax in South Africa as that is where the asset is based and then Australia will give you a credit for the tax paid in South Africa when you declare all the income on your Australian return.  

 

Tax considerations that should be considered Capital Gains Tax "exit charge”

Ceasing to be a tax resident of South Africa may have significant capital gains tax consequences as it generally results in the deemed disposal at market value of your worldwide assets. The main assets which are excluded from the deemed disposal are immovable property situated in South Africa and any equity instruments acquired by virtue of employment which have not yet vested for tax purposes. 

The individual’s tax year is also deemed to have ended on the date immediately before the day on which the person ceased to be resident.  Any capital gains and/or losses arising from the deemed disposal would be included in the person’s annual income tax return for that tax year. 

[Shampoo]

Entirely incorrect. Emigration does not affect future business profits as it is not Capital but Income. CGT must be paid on movable property such shares and the "deemed" sale is done BEFORE emigration while you are still ordinarily resident in the RSA. The repurchase is done after exit. There is a DTA in place that states capital gains are only taxable to the state of residency. So you start on a clean slate in Australia with a new base cost and have zero gains upon arrival.  

[SandraDee]

Hi Shampoo, I completely agree with your comment. Perhaps you misunderstood mine.  I was just pointing out to hithere that he would need to pay cgt on a deemed disposal of his asset in South Africa when he leaves, even if he doesnt sell his business. It sometimes comes as a shock when you leave but keep your business , especially if you have had it for a long time and built it up from nothing to something of significant value.  I know this was not something he was asking but something I thought I would point out anyway.  It wont affect anything in Australia as you rightly pointed out it is valued at your date of arrival so no CGT on arrival but loads on departure!  I also agree it doesnt affect future business profits, these are taxed in South Africa and the credit for the tax paid is given in Australia.

[Shampoo]

16 hours ago, SandraDee said:

Hi Shampoo, I completely agree with your comment. Perhaps you misunderstood mine.  I was just pointing out to hithere that he would need to pay cgt on a deemed disposal of his asset in South Africa when he leaves, even if he doesnt sell his business. It sometimes comes as a shock when you leave but keep your business , especially if you have had it for a long time and built it up from nothing to something of significant value.  I know this was not something he was asking but something I thought I would point out anyway.  It wont affect anything in Australia as you rightly pointed out it is valued at your date of arrival so no CGT on arrival but loads on departure!  I also agree it doesnt affect future business profits, these are taxed in South Africa and the credit for the tax paid is given in Australia.

What "deemed" disposal will he have in SA? A business will not be deemed as sold upon emigration. ONLY movable assets such as shares will be deemed as sold. As a small business owner he will not have shares in his unlisted micro business. 

His business in SA will carry on as usual and he will pay Income Tax in SA and Australia on the difference if any. No CGT will come to play at all. 

 

When he sells the business he will pay CGT on his gain on the sale of the business but there is an exemption amount that was R1m when I last looked some 6 odd years back when I sold mine. So in essence he will pay no CGT at all.

[XXXXX]

Hi SandraDee.  As a starting point, key question is to know more about the structure of the business.  As background assets belonging to a "permanent establishment" are excluded from the deemed disposal provisions.

 

Question - does you husband run the business as a sole proprietor or is the business housed within a company (or CC) structure.?

 

If the business run directly in his name (as a sole proprietor), the business would probably meet the definition of a permanent establishment and would not be subject to a deemed CGT disposal.

 

If housed within a company structure, the assets may not trigger a deemed disposal itself, but the value of the shares might result in a triggering of the deemed disposal on the value of your shares (which is indirectly a value of the asset and any goodwill).

 

As alway's I strongly recommend that you seek professional advice (not from me) on an issue as sensitive as this.   Hugo2, would be a sensible place to start