Interpretation Note 4 - 2018 (Issue 5) – “Physical Presence Test” - Layman Version

Purpose

• • The Note explains the Physical Presence Test.
  • It applies only to natural persons who are not ordinarily resident in South Africa during a tax year.
  • If you pass this test, you become a tax resident under section 1(1)(a)(ii) of the Income Tax Act.

Background (Why It Matters)

• • Since March 1, 2001, South Africa uses a residence-based tax system.
  • Residents are taxed on worldwide income.
  • Non-residents are taxed only on SA-sourced income.
  • You become a resident by either:
    • Being ordinarily resident, or
    • Passing the Physical Presence Test (and not being exclusively resident of another country under a tax treaty).

What Is the Physical Presence Test?

• • You meet this test if, in the relevant tax year and the five preceding years:
  • You spent more than 91 days in South Africa during the current tax year.
  • You spent more than 91 days in South Africa during each of the five previous years.
  • You spent a total of more than 915 days in South Africa across those five previous years.
  • If you meet all three conditions, you are considered a tax resident for that year.

Counting Days: What Counts as a Day?

• • Any part of a day in SA counts as a full day (e.g., arriving at 23:55 = 1 day).
  • Days in transit without formally entering (e.g. at airport but not through immigration) are excluded.
  • Arrival and departure days (as stamped in your passport) are included.

Examples

• • Example 1: Missed the 915‑day total

• • • Over five years you spent 563 days total in SA — below 915 → Test fails → Not a resident under this test.

• • Example 2: All three conditions met

• • • Over five years: 975 days total
    • More than 91 days each year
    • In current year: 108 days
      → Passes test → Resident from start of that tax year.

When Does Residency Start or End?

• • Start: If you pass the test in Year 6, you’re a resident from the first day of that tax year (e.g. March 1).
  • Cease: If you then stay outside South Africa for at least 330 consecutive full days, you stop being a resident from the day you left.
  • Note: The physical presence test is repeated every year if you’re still not ordinarily resident.

Interaction with Tax Treaties

• • If a double-tax agreement (DTA) says you’re only resident in another country, you are not a South African tax resident, even if you pass the physical presence test.
  • Treaty definitions take priority over domestic law under section 1(1).

Summary Overview

• • The Physical Presence Test offers a second route to tax residency for those not ordinarily resident.
  • You must meet all three thresholds (current year, each prior year, and total days) to qualify.
  • Once qualified, you’re taxed on worldwide income from the first day of that tax year, unless a DTA overrides.
  • You cease residency after 330 full days abroad, counted consecutively.

Why It Matters

• • Helps expatriates and long-term visitors determine whether South Africa treats them as tax residents.
  • Crucial for understanding if you’re liable for worldwide income tax.
  • Many mistakenly assume frequent visits or long stays abroad automatically end residency, but you must meet the 330‑day rule to cease automatically.