Change of tax-residency status I have already canvassed the criteria governing the change of residence of an RSA resident (see 192, 200 TSH 2019). In essence, one must have regard to:
- Any applicable double tax agreement.
- The case law on the expression ‘ordinarily resident’.
- The physical presence/absence test (see the SARS Interpretation Note 4 issue 5).
Impact on RSA trust beneficiaries
An often overlooked matter is the adverse CGT impact on trust beneficiaries of an award by the trust after a change in residency. Paragraph 80 of the Eighth Schedule to the Income Tax Act provides that a distribution to or vesting of an asset (or a capital gain) in a resident beneficiary results in the beneficiary’s being subject to tax, rather than the trust itself. This is an important distinction, since the effective CGT rate of a trust is 36% (45% x 80% of gain), while the maximum CGT rate for an individual is half of this, being 18% (45% x 40% of gain). Thus, it is clearly cost effective from a CGT point of view for the beneficiary to bear the CGT tax. But if an asset (or gain) is vested in a nonresident beneficiary, the resident trust is taxed, and at the higher effective rate.
It follows that trust beneficiaries who are changing their tax residency status should, if economically possible, have assets (or gains) distributed or vested in them before becoming