The Revenue Laws Amendment Bill, which is likely to become law in December, will usher in a new way in which you will have to calculate foreign income for tax purposes.
The bill, which is intended to address ambiguities and inconsistencies in tax legislation, was tabled in Parliament earlier this month.
Among other things, the bill attempts to deal with foreign currency issues which arise as a result of the worldwide tax system which became effective in 2001.
Tabling the bill, the Minister of Finance, Trevor Manuel, said it seeks to translate all foreign income and losses into rands in terms of a unified averaging system.
At present, you have to convert foreign income or losses into rands using the prevailing exchange rate on the day that you received that income or incurred those losses.
Once the bill is enacted, you will be able to convert all foreign income and losses into rands utilising a simple average exchange rate for that tax year. This could be either an average of the daily, weekly or monthly exchange rates.
Nico Alberts, a manager at the South African Revenue Service (SARS), says that other than referring to the closing spot rate at the end of daily, weekly or monthly intervals, the law does not prescribe specific exchange rates you should use, but SARS will accept the use of your commercial bank's buying rate as quoted for telegraphic transfers. The rate you use must be applied consistently when calculating your tax for a particular tax year.
Alberts says SARS is considering issuing an interpretation note on this issue and may even publish the applicable rates on its website.
If you do not want to use an average exchange rate, you can use a weighted average. In terms of this method, if for example you earned US$1 000 (R9 660) as a salary and US$100 in interest, you could convert the $1 000 by the spot rate on the day on which you earned that money and add it to what $100 is equal to when converted to rands using the spot rate on the day on which that $100 accrued to you.
Manuel says this averaging system clearly means the government is an equal partner to changes in the value of the rand.
The bill also streamlines the taxation of currency speculation, in that taxpayers with liquid foreign portfolio investments remain fully subject to tax on their currency gains and losses with respect to those investments.
"This balanced approach ensures that businesses remain competitive while not being given an artificial incentive to enter into foreign currency speculation. Limited taxation of these gains also ensures easier enforcement and compliance. The new regime wholly ignores currency gains stemming from private travel and comparable personal expenditure. Such gains are time-consuming to process, tedious for compliance, and generate little real government revenue," Manuel said.
The bill amends the definition of a resident of South Africa to exclude those days during which a person is in transit through the country. The days a person is in South Africa are used to determine whether or not a person will be classified as a resident and hence be liable for tax on income earned anywhere in the world. You will only be regarded as in transit if you do not formally enter South Africa through a port of entry.
The bill also deals with the people who work outside South Africa for specific periods, making it clear that only the income they receive during the year in respect of services rendered outside the country is exempt from tax. This excludes other benefits such as pensions payable during another tax year.