Tax refund from SARS?

[Springbok]

I’m not sure if my logic is correct here, so will appreciate if someone knowledgeable with tax in South Africa, can check the following and let me know whether this argument is flawed or not:

It seems that SARS is going to owe me a nice refund for the 2007/2008 tax year, which runs from 1 March 2007 – 29 February 2008. Reason being that I have worked for only 3 months (until 31 May 2007) during that period in South Africa before I relocated to Australia. However I was taxed on the equivalent of a 12-month income, which means I have OVERpaid.

Example: let’s say for illustrative purposes that I was on an annual cost to company of R300,000 p/a (not my real income of course …). Of that, roughly R250,000 p/a was taxable after deductions like retirement benefits, medical aid, etc. Now according to the tax tables, the annual tax payable (35% tax bracket) on R250,000 = R58,125. As I have worked for 3 months, I would have paid a total tax of R14,531 for the 3 months to 31 May 2007, before relocating to Australia on 1 June 2007.

Now, when completing my tax return for 2007/2008 next year, I would have earned an income in South Africa for only 3 months during the current tax year. Which means my total taxable income for the 12 months was only R62,500 and not R250,000 (which would’ve been the total amount had I actually worked for 12 months). An income of R62,500 over 12 months falls in the lowest tax bracket, i.e. 18%. So the tax payable on R62,500 should be R11,250. However I have paid R14,531, which means SARS owes me R14,531 – R11,250 = R3,281!

Please correct me if I’m wrong, but I hope I’m not…

I have run this for a few scenarios and came up with the following result. The chart shows what the maximum tax refund is for a range of taxable incomes and for how many months into the tax year you should work in order to get that maximum refund. E.g. for a taxable income of R260,000 the maximum tax refund is R6,237 in month 5. Which basically means that if the tax year starts on 1 March and your taxable income is R260,000 per annum, you should work for 5 months until 31 July before relocating to Australia, to maximize your tax refund from SARS in the following year.

As you can see, the guy with a taxable income of R1 million, should only work for 3 months to get a maximum tax refund of R28,756. Just see the big difference when he works for 11 months:

1 month – R14,020

2 months – R24,046

3 months – R28,756

4 months – R28,667

5 months – R26,217

6 months – R22,637

7 months – R18,398

8 months – R13,758

9 months – R9,519

10 months – R5,279

11 months – R640

Remember to work with your TAXABLE incomes, not your total cost to company. Just thought this was quite interesting... comments/criticisms welcome.

[DesV]

You have got it right Springbok but dont forget you have now also worked in Australia for possibly 9 months and been taxed at a 12 month rate, so you should also get a nice return from australia. Yes it certainly pays (in more ways than you realize) to emmigrate.

[Jannie]

Hi Springbok,

Sorry to be the bearer of bad news. I have an accounting firm in Pretoria and have had this question millions of times from people leaving the country or working outside of South Africa for the biggest part of a tax year.

You will have been out of the country for more than 183 days of which 60 were consecutive for the 2008 tax year. These are the South African requirements to determine if you will be taxed in SA on all your income, irrespective of source or only your SA income. Because you will meet the required days out of the country you will ony be taxed on your South African income in SA. Even though you only worked 3 months SARS will annualize your come and calculate your tax accordingly. Your employer in SA would then have deducted the correct tax, in your example R58,125. The reason is, you were in SA for three months and they will only tax you for three months. Keep in mind the published tax tables are annual tax tables, the reasons then why SARS would annualize your income.

I am still busy with my Oz tax course but I would think that you will need to declare all your income, irrespective from which country. I have checked and there is a double tax agreement between South Africa and Austalia (http://www.sars.gov.za/it/DTA/dta/Comprehensive%20Treatie%20-%20Australia.pdf). You will get a credit on you Australia tax return for the tax paid to the SA goverment on the income received in SA.

This will be the general rule. Keep in mind the SA tax year is end of Feb but the Oz one is end of June. Thus, for Oz 2007 purposes you wil not have earned any income in Oz and mignt not need to declare any income. In SA you only need to declare your three month's salary and pay the tax there on calculated on an anualised basis as explained above, this no tax credit from SARS but at least also no additional tax payable.

Hope it helps. Shout if there are any further questions!

Jannie

[Springbok]

Even though you only worked 3 months SARS will annualize your come and calculate your tax accordingly.

Bastards! thanks Jannie, yes I'm aware of the double-tax agreement.