When a South African resident ceases to be a resident (an event simply declared by ticking a box on the annual income tax return when submitted), a deemed disposal comes into play.

Also referred to as an exit charge, a deemed disposal means that the individual is treated as having disposed of their assets on a date immediately before ceasing their residency, and re-acquiring the same assets on a date immediately thereafter. Similarly, the year of assessment is deemed to have ended immediately prior to their ceasing residency, and a new year of assessment started immediately after.

A deemed disposal does not apply to immovable property held in South Africa.

A capital gains tax event

This deemed disposal triggers a potential capital gains tax. This excludes immovable property in South Africa, cash, and (although not explicitly, on a very technical basis) retirement-related funds. Apart from these assets, all remaining South African and other worldwide assets are included in the “deemed disposal” regime.

Nevertheless, you may have access to some tax treaty relief. SARS states that “an individual who is deemed to be exclusively a resident of another country for purposes of a tax treaty is excluded from the definition of ‘resident’. It follows that while an individual may qualify as a resident under the ordinarily resident or physical presence tests, that individual will not be regarded as a resident for South African tax purposes if that person is a resident of another country when applying a tax treaty.”

In summary, emigrating, or ceasing tax residency for whatever reason, may increase your tax liability for the year of assessment in which you cease residency. But there are exemptions.

If you’re considering emigration and/or ceasing to be a tax resident, pre-emigration planning is essential for a smooth (and liquid) transition.

Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts at AJM Tax share their tips and explanations on tax issues. Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday.