Tax exemption impact of Covid-19 travel ban

- Some temporary relief has been provided by the South African Revenue Service (SARS) for the 2020 and 2021 years of assessment.

With tax filing season in full swing, many taxpayers will be weighing the tax impact of the travel restrictions imposed during the hard lockdown in South Africa.

The good news is some temporary relief has been provided by the South African Revenue Service (SARS) for the 2020 and 2021 years of assessment.

“Covid-19 has cut a swathe of destruction through the economy and the health sector, affecting life and livelihoods. Among the consequences, the severe lockdown Level 5 impacted the travel arrangements of many individuals. Fortunately, there has been some relaxation in this regard to cater for these undesired outcomes,” says Megan Landers, Manager: International Tax at specialist tax and transaction advisers, AJM Tax.

“To accommodate the fact many people were not able to travel, the 183-day exemption requirement has been reduced to 117 days, although the 60 consecutive day requirement remains intact. This is still for a given 12-month period,” she explains. These changes relate to section 10(1)(o)(ii) of the Income Tax Act, which provides a tax exemption for residents who render services outside South Africa for more than 183 full days in a given 12-month period, of which 60 of those days need be continuous.

Landers points out that South African tax residents are taxed on their worldwide income, which inherently includes income procured abroad. “But provided the above two requirements are met, the first R1.25 million of foreign employment income is now exempt from tax liability, based on recent tax amendments. Any income earned above the threshold will then be taxed based on the normal income tax tables and rules.” Landers says the monetary limit applies from 1 March 2020, and before that time, the entire portion of income for services rendered abroad was exempt.

“The relaxation is not permanent in nature and merely finds application for the 12-month period commencing on or after 29 February 2020 and ending on or before 28 February 2021 – therefore implying that only the 2021 year of assessment returns can be based on the aforementioned. Fortunately, the fiscus realises the need for positive intervention,” concludes Landers.