Tax Residency in the Republic of South Africa: Interpreting Ordinary Residence and Physical Presence Test. 

Tax Residency in the Republic of South Africa: Interpreting Ordinary  Residence and Physical Presence Test. 

This legal article investigates the determination of tax residency in the Republic of South Africa which is outlined in the Income Tax Act 58 of 1962 (the Act)1. It will do this by focusing on  the dual framework of South Africa’s ordinary residence test and the physical presence test; by  drawing from statutory provisions, landmark case law and the South African Revenue Service  (SARS) guidance; and by discussing the highlights of how courts balance subjective and  objective indicators of residence. This analysis will consider practical challenges in application,  more so in the context of global mobility, and will compare South Africa’s approach with other  jurisdictions. This legal article will conclude with recommendations for clarity and reform,  highlighting the importance of a coherent residency framework in ensuring taxation is fair and  effective.  

The Ordinary Residence Test  

The phrase ‘ordinary residence’ is not defined in the Income Tax Act and so consequently, case  law must be relied on to determine its parameters2. The English courts in the case Levene v  IRC [1962] AC 2173, emphasised that ordinary residence involves a degree of continuity and  permanence as opposed to an accidental or temporary presence. South African courts adopted  this reasoning in another case, Cohen v CIR 1946 AD 1744, where Watermeyer CJ held that a  person is ordinarily resident in a country to which he would naturally return and as a matter of  course return to after his wanderings. This principle has become the foundation of the ordinary residence test in South Africa. 

This principle was further developed in the case Kuttel v CIR 1992 (3) SA 242 (A)5, where the  court recognised that a person may have more than one residence but that the decisive issue  was where the person’s ‘real home’ is located. Mr Kuttel had spent a significant amount of  time aboard for business, however, the court found that his retention of a family home in Cape  Town, South Africa, demonstrated that his ordinary residence remained in South Africa. The  judgements made by all these courts are influenced by SARS Interpretation Note 36, which confirms that both the subjective intention and the objective factors- such as permanence of  dwelling, integration into social and economic life, and family connections- are all relevant  when determining ordinary residence of a natural person. Furthermore, it can be deduced that  the ordinary residence test is flexible and fact-specific, which requires a holistic assessment of  the person’s settled mode of life.  

The Physical Presence Test 

In addition to the ordinary residence test, South African Tax Law also provides for a physical  presence test of a natural person for determination of their residence status for tax purposes.  Section 1 of the Act7sets out the physical presence test, which establishes specific conditions  that must be met for a natural person to acquire tax residency in South Africa even if they are  not ordinarily resident to the Republic. A person is deemed resident in South Africa for a period  or for periods exceeding: 

• 91 days in aggregate during the current year of assessment. 
• 91 days in aggregate during each of the five years of assessment preceding the current  year of assessment; and 
• 915 days in total during those five preceding years of assessment8.  

For this test to be applicable, all three of the requirements must be met concurrently. If any one  of the three requirements is not fulfilled, the natural person will not be considered a tax resident  under this test. It is also essential to note the impact of absence from South Africa. If a person  who was previously deemed resident under this test is physically absent from the Republic for  a continuous period of more than 330 full days, commencing from the day after their departure,  they will be deemed not to have been a tax resident from their day of departure9. This rule  serves as a significant exit clause for persons who no longer maintain a physical presence in  South Africa. 

The SARS Interpretation Note 4 (Issue 3) additionally explains that the assessment of the 330- day rule must be done prospectively, because that period of absence must be continuous and therefore can only be determined after the fact10.  

A day spent in transit through the Republic via air travel- where the person does not formally  enter the country through immigration control- will not be counted as a day of physical  presence. However, where an immigration procedure has been followed, such a day will be  counted11. 

The Purpose of the Ordinary Residence Test and the Physical Presence Test 

The ordinary residence test depends on a fact-intensive inquiry into the intention and the  lifestyle of the natural person. Whereas the physical presence test functions as a statutory mechanism in determining tax residency by reference of objective requirements. The physical  presence test anchors residency in quantifiable periods of time spent within the borders of the  Republic. The underlying rationale of this is to promote predictability and certainty in the  determination of tax status, consequently preventing taxpayers who have spent a substantial  amount of time in South Africa from avoiding liability on the claim that they are not ordinarily  resident or basis of claimed foreign domiciles or subjective intentions12.  

Admirative Guidance and Limited Case Law 

In contradistinction to the extensive jurisprudence on ordinary residence, the physical presence  test generates minimal judicial consideration. The paucity of case law attributes to the  mechanical nature of statutory formula which then leaves room for interpretation. On this basis,  SARS has assumed a significant role in clarifying how this test operates. Interpretation Note 4  elaborates on the computation of days of presence, the relationship between the statutory test  and the common law residency inquiry, and the application of the 330-day exclusionary rule13.  In practice, these administrative guidelines have become the principal reference point for both  practitioners and taxpayers in applying the physical presence provisions. 

Strengths and Limitations 

The key advantage of the physical presence test lies in its objectivity. By tying a person’s  residency to fixed temporal thresholds, it migrates the litigating risk and the uncertainty that is  inherent in the ordinary residency test which is more subjective. From a perspective of  compliance, the taxpayer benefits from the ability to calculate their status with precision. This  same perspective can also be its weakness because the test is purely mechanical, and so individuals can deliberately structure their travel structure or patterns to remain below the  statutory threshold and as a result escape resident status14. Moreover, the statutory test fails to  account for qualitative connections which can include family, economic or social ties that may  indicate that a person’s life is centred in the Republic. For this reason, the physical presence  test should be understood as a supplementary safeguard designed to capture objective present  natural persons who might evade the tax net, and not as a substitute for the ordinary residence  inquiry.  

The Interaction Between the Two Tests 

The ordinary residence test and the physical presence test are designed to operate in tandem  but differ fundamentally in nature and their relationship is critical to understanding the South  African framework of tax residency. The ordinary residence test, as developed in Cohen v. CIR  and Kuttel v. CIR, is rooted in common law and requires a holistic assessment of the natural  person’s objective ties and subjective intention. In contrast to this, the physical presence test is  a statutory construct that relies exclusively on measurable periods of the natural person’s  presence in South Africa’s borders15. In practice, a person may qualify as a resident under each  test. Where both tests apply, however, the South African Law provides that ordinary residence  prevails16. This hierarchy underscores that at its core, the principle of residence is a question  of personal and economic integration, rather than a mere calculation of days spend in the  Republic. The physical presence test only serves as a statutory safeguard to ensure that a person  who spends a significant time in the Republic cannot evade taxation, while the ordinary  residence test remains the primary determinant of tax status. 

This dual structure has a major implication for taxpayers. On one side of the spectrum, it  enhances the robustness of the residency framework by preventing avoidance through formalistic arguments. And on the other side of the spectrum, it also creates an overlap and  uncertainty, specifically for globally mobile individuals whose circumstances may satisfy  elements of both tests. In these cases, the resolution of residency often requires recourse not  only to domestic law, but to tie-breaker provisions in applicable double taxation agreements17.  These agreements may allocate residency based on factors such as a natural person’s permanent home, centre of vital interest, nationality and habitual abodes. This thereby mitigates the risk  of double taxation that could arise from concurrent application of both South African Tests.  

Comparative Perspectives and Recent Developments 

Comparative perspectives demonstrate the strengths and limitations of the Republic’s dual  framework. The United Kingdom introduced a statutory residence test in 2013 which blends  objective day-count thresholds with qualitative ties. This includes family, employment and  accommodation18. The model provides a significant certainty than South Africa’s reliance on  case law, all while accommodation flexibility through the tie-breaker rules. Austria considered  reforms to simplify its residency rules by codifying clearer and more objective standards19. In  contrast to this, South Africa continues to depend on a common-law concept of ordinary  residence that is supplemented by a mechanical day-count test, which then leaves room for  uncertainty and dispute. 

Recently, law practice underscored the importance of residency determinations in a globalized  economy. SARS has intensified its scrutiny of cross-border taxpayers, specifically those who  invoke the 330-day exemption or rely on double taxation agreements20. In cases such as these,  treaty-based tiebreaker provisions such as permanent home, habitual abode and the centre of  vital interests, are frequently decisive. Currently, there are debates which suggest that the  Republic may ultimately move towards codification similar to the UK model, however for now,  the dual test structure remains firmly in place. 

Suggestions and A Way Forward 

South Africa’s dual framework has value, but reform is necessary to improve clarity and reduce  disputes. Codification of a statutory residence rest, similar to the UK model, could integrate  objective criteria with qualitative ties into a single coherent framework. This type of reform  would preserve flexibility while offering significant predictability for taxpayers and 

administrators alike. In the interim, SARS should issue comprehensive and updated guidelines  for both tests which will ensure consistent application and limiting reliance on costly litigation.  

The alignment with international best practices would strengthen the Republic’s position in  resolving dual-residency conflicts under treaties21. 

Ultimately, tax residency lies at the core of South Africa’s income tax system, serving as the  decisive pathway for the imposition of liability on worldwide income. The current framework  employs two complementary tests: the ordinary residence test and the physical presence test.  The primary test, which is the ordinary residence test, is grounded in common law and requires  a fact-specific assessment of a natural person’s settled mode of life, its development through  the cases of Levene v. IRC, Cohen v. CIR, and Kuttel v. CIR illustrates the courts’ focuses on  both the objective ties and the subjective intention. While this flexibility allows for the law to  adapt to diverse circumstances, it does also introduce uncertainty. 

The physical presence test provides a statutory mechanism that relies exclusively on  quantifiable periods of a natural person’s presence in the Republic. Its strength lies in the  predictability and its objectivity; however, its weakness lies in that same rigid structure.  Taxpayers can deliberately structure their affairs to avoid crossing statutory thresholds and it  also fails to capture deeper social and economic connections. Practically, the two tests operate  together, where the ordinary residence test take preference if both these tests apply. This dual  approach strengthens the overall framework, even if it may also generate overlap and  complexity. Double taxation agreements, specifically their tie-breaker provisions, play a  crucial role in mitigating the tensions. 

Comparative perspectives highlight potential pathways. The UK statutory residence test  demonstrates that it is possible to combine flexibility with objectivity, which Austria’s reforms  signal a global trend towards greater codification. South Africa’s perspective still relies on a  hybrid of statutory thresholds and common law principles. As cross-border mobility continues  to intensify and SARS increases scrutiny of expatriates, the need for reform in the Republic  becomes more urgent. 

In full analysis, the dual test system reflects an attempt to balance administrative certainty,  flexibility and fairness. However, its shortcomings- uncertainty under ordinary residence, and  rigidity under physical presence, and complexity when both tests- suggest that progressive  adjustments are necessary. This can be through codification of a comprehensive statutory test  or through SARS enhanced guidance. Clarity must improve to ensure the rules of residency are equitable, predictable, and aligned with international standards. Until such reforms are enacted,  the South African courts and administrators will continue to mediate precarious equilibrium  between objective presence and subjective ties in defining tax residency in South Africa. 

Reference(S) List: 

Austl. Treasury, Reforming Individual Tax Residency Rules: Government Consultation  Paper (July 2019). 

Cohen v. Comm’r of Inland Revenue 1946 AD 174 (S. Afr.). 

Finance Act 2013, c. 29, sch. 45 (UK).HM Revenue & Customs, RDR3: Statutory Residence Test  (SRT) (Apr. 2023). 

Income Tax Act 58 of 1962 (S. Afr.). 

Kuttel v. Comm’r of Inland Revenue 1992 (3) SA 242 (A) (S. Afr.). 

Legwaila, T., Tax Law: A South African Perspective (Pearson, latest ed.). 

Levene v. Inland Revenue Comm’rs [1928] AC 217 (HL) (UK). 

OECD, Model Tax Convention on Income and on Capital: Condensed Version (2017). S. Afr. Revenue Serv., FAQs: Tax Residency and Expatriates (2021). 

1. Afr. Revenue Serv., Interpretation Note 3: Resident: Natural Persons—Ordinarily  Resident (Feb. 4, 2002). 
2. Afr. Revenue Serv., Interpretation Note 4: Resident: Natural Persons—Physical Presence  Test (Feb. 3, 2002). 

Stiglingh, M. et al., Silke on South African Income Tax (LexisNexis, latest ed.).

1Income Tax Act 58 of 1962, s1 (definition of ‘residence’) 

2 Thabo Legwaila (ed.), Tax Law: An Introduction 29 (2nd edn, Oxford University Press 2019) 3Levene v Inland Revenue Commissioners [1928] AC 217 (HL). 

4 Cohen v CIR 1946 AD 174. 

5 Kuttel v CIR 1992 (3) SA 242 (A).  

6SARS Interpretation Note 3. ‘Resident: Natural Persons- Ordinarily Resident’ (4 February 2002).

7Income Tax Act 58 of 1962, section 1 (1) (definition of ‘resident’)  

8Ibid. 

9Ibid. 

10 South African Revenue Service, Interpretation Note 4 (Issue 3), dated 12 March 2014.

11 Thabo Legwaila (ed), Tax Law: An Introduction 31 (2nd edn, Oxford University Press 2019).

12 Income Tax Act 58 of 1962, S1 (S. Africa) 

13 S. Afr. Revenue Serv. Interpretation Note 4: Resident: Natural Persons- Physical Presence Test (Feb 3, 2002)

14 See M. Stinglingh et al, Silke on South African Income Tax. (LexisNexis latest ed) 

15 Income Tax Act 58 of 1962 S1 (S. Afr.); Cohen v Comm’r of Inland Revenue 1946 AD 174 (S. Afr.); Comm’r of  Inland Revenue 1992 (3) SA 242 (A) (S. Afr.). 

16 S. Afr. Revenue Serv., Interpretation Note 4: Resident: Natual Persons- Physical Presence Test (Feb. 3, 2002)

17 OECD: Model Tax Convention on Income and on Capital: Condensed Version art. (2017) (setting out tie breaker rules for dual residency) 

18 Finance Act 2013, c. 29, sch. 45 (UK); HM Revenue & Custom, RDR3: Statutory Residence Test (SRT) (Apr.  2023) 

19 Austl. Treasury, Reforming Individual Tax residency Rules: Government Consultation Paper (July 2019)

20 S. Afr. Revenue Serv., FAQs: Tax Residency and Expatriates (2021); OECD; Model Tax Convention on Income  and on Capital; Condensed Version art. 4 (2017).

21 See Finance Act 2013, c. 2. 45 (UK; Austrl. Treasury, Reforming Individual Tax Residency Rules: Government  Consultation Paper (July 2019).