BPR 156 dealt with the question of whether (or to what extent) a pension annuity and a retirement lump sum benefit will be taxable in South Africa, if it is received by or accrues to a person who is not a resident of South Africa, from a South African registered pension fund.

Prior to 2001, residents and non-residents were taxed based on the source of their income; essentially their income was taxed in South Africa (SA), if it originated in SA. Since 2001, SA has recognised the residence basis of taxation, which means that if a person is a resident in SA, he or she is taxed in SA on their worldwide income, regardless of its source. The source based system of taxation is, however, still applicable to non-residents in SA. Thus, persons who are not resident in SA, will only be subject to tax in SA on income sourced in this country. Double Tax Treaties (DTT's), which have been concluded by SA with various countries, regulate the taxation of income earned in one state and taxed in another, to ensure that double taxation is avoided.

Section 9 of the Income Tax Act, No 58 of 1962 (ITA) determines the source of various types of income. Specifically, s9(2)(i) treats an amount as being from a source in SA, if it is a pension or annuity and the services in respect of which that amount was received or accrues, were rendered within SA. Section 9(2)(i) further provides that the amount received or accruing, must be apportioned where the services were rendered partly inside and partly outside SA.

The facts in this instance were that the Applicant was employed by one company in a group of companies, which company was registered in SA. In 1999, the Applicant's employment with the latter company was terminated and he left SA to join a foreign company in the group, and then became ordinarily resident in that foreign country. The Applicant made contributions to a registered South African pension fund during his term of employment in SA and subsequently continued to contribute to this fund, despite having lost resident status in SA as a result of his move abroad.

Essentially, regarding the question submitted for ruling, SARS ruled based on s9(2)(i) of the ITA, providing that the portion of the pension annuity and retirement fund lump sum benefit received or accrued from a South African source (relating to services rendered in SA), would be included in the Applicant's gross income in SA in terms of paragraphs (a) and (e) of the 'gross income' definition. Therefore, the pension and retirement fund pay-out would have to be apportioned and only the portion relating to the time during which services were rendered by the Applicant in SA, will be taxed in SA. The remaining portion will be taxed based on its source.

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