Tax Avoidance

[duncan drennan]

Sorry, I didn't explain my question well. I meant more in the case of these offshore trusts, where business is channelled through them. Sieg mentioned the "source of income" and I was wondering how that applied to where the income generating activities take place.

[taxlibrary]

Anakin, please don't even consider it.

First, South Africa has a residence basis of taxation. So, with the exception of the foreign income allowance for individuals (see Interpretation Note 6: http://www.sars.gov.za/home.asp?pid=5993 ) you will be taxable in South Africa on your worldwide income. You have to declare all your income from all sources, earned anywhere in your South African income tax return.

Second, the employer in Canada is likely to deduct tax from your salary there. You can set that amount of tax paid off against your South African tax liability if your salary is also taxable in South Africa. (In other words, there will be no double taxation.)

Third, if you set up a foreign company of which you are the main shareholder, the income of that company is taxable in your hands in South Africa, unless the company has an office with employees outside of South Africa (Section 9D of the Income Tax Act.)

The income of an offshore trust is also likely to be taxed in your hands in South Africa, as it is not easy to set up such a trust and safeguarding the assets in it without you (or other South Africans) being the main beneficiaries or trustees.

In conclusion, accept that you will pay normal income tax on your salary or contracting income. It is likely to cost you a lot of money to set up fancy structures and it is close to impossible for an individual or small business to reduce their overall tax bill by setting up offshore structures.

http://www.taxlibrary.co.za