A comparative analysis of emigration taxes for migrating individuals

du Plessis, Adelle Charlene

A comparative analysis of emigration taxes for migrating individuals

Thesis / Dissertation

2024

Publisher

University of Cape Town

Department

Department of Commercial Law

Faculty

Faculty of Law

Abstract

Emigration taxes have become increasingly relevant in a globalized world, where individuals frequently seek new opportunities abroad. when an individual taxpayer opts to relocate to another jurisdiction, effectively relinquishing their South African tax residence, a fiscal event is triggered. This event assumes the form of a deemed disposal of their assets, except for those that fall within specific exclusions, valuated at their prevailing fair market value. Consequently, an exit tax liability ensues, tethered to the theoretical capital gain arising from this fictional disposition. It is imperative to note that the South African exit tax system mandates the immediate payment of this tax obligation. Worth highlighting is the notable exemption, as it stands currently, pertaining to an emigrant's interest in retirement funds. However, the fiscal landscape faced a proposed amendment in the year 2021 when the National Treasury, in its National Budget Speech, endeavoured to incorporate such retirement fund interests into the purview of exit taxation. This proposed inclusion encountered vehement opposition from tax professionals and media outlets alike. The Canadian system's operative provisions are similar to the South African provisions in that when a Canadian resident becomes a non-resident for tax purposes, they are deemed to have disposed of certain types of property at their fair market value. This deemed disposition can result in a capital gain, which is subject to taxation. However, there are provisions in place to provide relief for certain assets, such as a principal residence and certain pension plans, to mitigate the tax burden on emigrants. Notably, the Canadian system provides for a deferral of payment of the exit tax as triggered on the date of cessation of tax residence. This minor dissertation embarks on a thorough comparative examination of the emigration tax regimes in South Africa and Canada, aiming to elucidate critical aspects encompassing tax residence, system introduction, application, implications for emigrants, and the administrative processes involved in each jurisdiction. It will also seek to identify areas for possible double taxation that could occur due to the application of either respective system. The study commences with an explanation of the fundamental concepts and determinants of emigration taxes, offering a comprehensive definition along with an explanation of the various types of emigration taxes. Furthermore, it delves into the temporal aspects associated with these taxes and explains the mechanisms employed for their recuperation. In light of the aforementioned aspects, the study furnishes the overarching rationale that underlies the imposition of emigration taxes. The research continues to delve into the core components of the two systems of emigration tax implemented by the respective jurisdictions, examining and comparing the mechanisms of each. It also briefly investigates the possible application of the emigration tax to retirement savings and the possible reason for its inclusion or exclusion. Furthermore, the study explores the administrative processes and compliance requirements associated with emigration taxation in South Africa and Canada. It analyses the ease of understanding, reporting, and adhering to these tax regulations, considering the potential influence of administrative complexity on emigration decisions. This comparative analysis aims to highlight key similarities and differences inherent in the two systems that form the subject of this minor dissertation. Following the aforementioned research and analysis, this dissertation will endeavour to compare the systems and accordingly discern potential advantages intrinsic to the Canadian framework that may offer pragmatic applicability within the South African context and vice versa.

Keywords

commercial law

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