Abstract
Globalisation trends extending to the movement of labour across jurisdictions have created conflict in the allocation of taxing rights for countries where the country of residence and the country of employment seek to tax employment income earned by taxpayers. This is also known as double taxation.
In South Africa, the double tax dilemma in relation to foreign employment income came into effect when South Africa changed from a source-based tax system to a residence-based tax system in 2001. The residence-based tax system stipulated that South African tax residents would be taxed on their South African earned income and on their worldwide income. Therefore, South African tax residents employed abroad risked paying taxes in South Africa and the country of employment.
To alleviate the risk of double taxation on foreign employment income, SARS provided a unilateral full exemption relief on foreign employment income in efforts to align the South African tax system to global practices. Noting the loss in tax revenue where certain South African tax residents were employed in jurisdictions that did not impose any tax or imposed low taxes, the SARS legislation then sought to limit the exemptions. In this endeavour, So SARS amended its tax exemption from a full to a partial exemption. Currently, South Africa limits its foreign employment income exemption to the first R1.25 million, while the excess is taxed at standard graduated tax rates. Like many other countries, including Canada and Australia, South Africa provides unilateral relief for double taxation. The commonly used methods to provide relief include tax credits, deductions, and exemptions. The relief for double taxation on foreign employment income is provided in terms of section 10(1)(o)(ii) of the South African Income Tax Act 58 of 1962 by way of an exemption.
Doctrinal legal research methodology is a traditional approach to legal research focusing on the written text of legal rules found in primary sources. This methodology is often used to analyse and interpret legal rules, doctrines, and principles in a particular area of law. Using this methodology, an investigation was undertaken as to whether the South African foreign income exemption is aligned to global practices given the successive amendments, which were initially meant to align the system to global trends. This research answers the question: How do the South African foreign employment income tax exemption principles, effective 1 March 2020, compare with Australia and Canada’s tax principles?