If you’re a South African working in Australia, it’s important to know your tax obligations in both countries. This is because South Africa (your home country) has a residence-based system of taxation, which means that you’ll be taxed on your income no matter where it is earned if you are considered a South African tax resident. In Australia, a resident individual is subject to Australian income tax on a worldwide basis, and non-residents who come to Australia for work are treated as temporary tax residents.
In such a situation, you could be taxed on the same income twice. Sounds good? No? This is where a tax residency certificate issued in Australia can help. Read on.
How does tax work in Australia?
The Federal Government of Australia has jurisdiction to tax Australian residents on their income from worldwide sources, and while non-residents are taxed on only Australian sourced income. Sound familiar? South Africa does the same thing. Non-residents who are employed in Australia are treated as residents for tax purposes by the Australian Taxation Office (ATO), and may also qualify to be a ‘temporary resident’, which means that they will be taxed at the same rates as residents and qualify for the same tax concessions.
In Australia, income is sourced in the place of employment or the fixed place of business. As such, there is the risk that one amount of income will be taxed twice in two countries. To avoid the unfair situation of double taxation (and to prevent tax evasion) Australia and South Africa have a Double Tax Agreement in place to ensure that one income amount is only taxed once.
What is double taxation in South Africa?
This is an unfortunate scenario in which an individual is expected to pay tax on the same income in two tax jurisdictions because both tax authorities consider themselves in a position to tax that money. If you think this is unfair, you’d be correct. That’s where a Double Tax Agreement comes in to soften the blow and lay down the rules on which country has the ultimate say on collecting tax from a South African tax resident. Practically speaking, what this means is that where one income amount is taxed twice in two countries, the individual can seek a tax credit in their country of residence for tax paid in the foreign country.
How do you avoid double taxation on your income?
If you are performing employment services, or receiving an income in Australia, this country will generally require a certificate of residence in order to allow you to apply for tax relief at the income source.
There are two ways to get this certificate, and it acts as confirmation of your tax residency:
- A resident certificate can be issued by the foreign country (Australia) where the employment services are rendered or income is derived; or
- As a South African resident, you can request SARS to issue a certificate of residence.
- Where a resident application form is issued by one tax authority, it must be stamped and signed by your home tax authority to confirm that you are in fact a South African tax resident.
- As such, you should contact both SARS and the ATO to clarify what is required from both tax authorities on either side.
What is a certificate of tax residence used for in Australia?
It is used for double taxation relief where you are a South African tax resident, earning an employment income in Australia. Obtaining a tax residency certificate is usually the first step in claiming relief under a DTA.
The Australian Taxation Office issues a certificate of residency for the purposes of verifying that you are an Australian tax resident for a specific period, and confirms your liability to pay tax on income in Australia.
Then, an overseas tax relief form must be issued by SARS, which must be completed and sent to the ATO to certify, and this certified overseas tax relief form confirms your residency status. If you do not have documentation from your overseas tax authority to confirm residency status, you may need to request a certificate of residency.
- Where you have paid tax on your income in Australia, you will then apply for relief from SARS according to the terms of the Double Tax Agreement between the two countries.
- Provided you meet the conditions of the DTA, you will receive a tax credit on your worldwide income in South Africa, because you can show that you have already paid tax to one revenue authority.
Why is a tax residency certificate important?
When someone is liable to pay tax in two jurisdictions, the only way to straighten this out is to see if they meet residency tests for that tax jurisdiction, and then to apply for a tax residency certificate in that jurisdiction.
Many expats make the mistake of thinking that they automatically become a tax resident of a particular country, or they automatically become a non-resident of another. This is incorrect. Residency is not an automatic, and a work permit is not sufficient proof of tax residence on its own.
As a taxpayer, the onus is on you to prove your tax status, and a tax residency certificate is thus the clearest way to verify your tax residency status to your employers or the revenue authority expecting you to pay tax on your income generated.
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