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My seafarer exemption was rejected. What do I do now?

Robert says:
22 December 2023 at 2:46

I received a SARS assessment after submitting my tax return via TaxTim. During the submission, there was no payment to SARS expected. However I then received an assessment for a large (R2m) balance owed. At the time I assumed it was a mistake or a premature assessment before my documents had been processed, but I've now received an email from SARS stating Outstanding Debt. Please could you assist me with understanding the significant discrepancy between the TaxTim calculation and the SARS assessment.

TaxTim TaxTim says:
26 December 2023 at 16:11

SARS has disallowed your foreign income exemption relating to the remuneration earned as a crew member of a foreign vessel. They should have requested documentation specifically relating to this deduction, but I see they did not do so.

We will assist you to submit a dispute so that you can submit the relevant documents to support the seafarer exemption. SARS will review your documents and should issue a revised assessment.

Please can you send us the following documents if possible:

1) Contract of employment which reflects your position/title/role and date of employment
2) Copies of passport showing days in and out of SA.
3) Spreadsheet showing days in and out of SA for the 2023 year of assessment (days out of South Africa should exceed 183 days)
4) a spreadsheet, which shows the monthly amount you earned and how you calculated the total foreign remuneration that you earned.

Once received, we will submit your dispute.

Robert says:
20 January 2024 at 20:42

I received feedback from SARS and the outcome of the dispute.
I incorrectly recorded a date logging my days outside RSA, and therefore did not meet the days requirement.
Since the difference is extremely close (6 days in question), I want to explore the possibility of making a change to my financial year end - if this is still feasible.

TaxTim TaxTim says:
22 January 2024 at 16:40

I reviewed your passport stamps again. Are SARS correct in saying the stamp should be 15 Feb and not 05 Feb? It's quite difficult to read the dates.

Robert says:
22 January 2024 at 20:07

Agreed the scans are misleading. I have subsequently checked other travel documents, flight details, etc, and the SARS records are correct.
Does an option exist to change the financial year-end in this case? 

TaxTim TaxTim says:
23 January 2024 at 11:11

Unfortunately, the year of assessment can't be changed. It is always 1st of March to 28th Feb of the following year for individual taxpayers.

There might be an option for you to claim the foreign employment exemption in terms of s10(1)(o)(ii) which would exempt your foreign remuneration up to R1,25million per annum if you have been out of the country for at least 183 days (60 being consecutive), within a 12-month period (not necessarily the year of assessment). This exemption differs from the seafarer one in terms of s10(1)(o)(i)(aa) which exempts all foreign remuneration provided the individual has been out of the country for 183 days in the year of assessment.

Firstly, the 183 days includes all calendar days, not only work days. Weekends, public holidays, annual leave days, sick leave days and rest periods spent outside of SA (provided you’re employed at the time) are all included when figuring out if you meet the 183-day condition.

Secondly, the consecutive 12-month period isn’t necessarily a calendar, financial or tax year. It’s any period of 12 successive months.

The 183-day / 60 Continuous Day Test:

Let’s pretend you have a contract that starts on 1 April 2022 and is valid for 18 months, ending 30 September 2023. To see whether you meet the 183 day / 60 continuous day condition, you’ll need to:

Mark the first date of your contract and count forward 12 months, e.g. 1 April 2022 to 31 March 2023.
Now determine whether you spent at least 183 days outside of SA during this period.
Then see if at least 60 of these days were continuous, i.e. in a row, with no break.
If you don’t meet the conditions using the above method, then repeat the steps but use the end date of your contract and work backwards 12 months, e.g. 30 September 2023 – 1 October 2022.

Robert says:
24 January 2024 at 10:53

Ok, that is unfortunate (I had perhaps made the assumption that flexibility of year of assessment existed similar to the UK with regards to seafarers tax exemption).

Thank you for highlighting the foreign employment exemption - this is definitely something I'd like to consider, and have a few follow-on questions (I do satisfy the qualification requirements):

- Is there any issue with the 12-month period considered in the foreign employment exemption overlapping with another assessment period which has income exempted as a seafarer? I.e.: I would propose January '22 - December '22, however 2022 year of assessment had earnings as a seafarer which were exempted.
- Extending the logic above, could I consider 2 separate 12 month periods and 2 associated foreign income exemptions (namely September '21 - August '22 and September '22 - August '23)? Both periods would satisfy the requirements, but only income for the 2023 year of assessment would be claimed.

TaxTim TaxTim says:
25 January 2024 at 8:23

There is only one foreign exemption amount of R1,25m allowed per annum. The tax return allows for the details of just one 12-month period to be inserted.

It does look like you should qualify for the foreign exemption claim based on the 183 days/60 consecutive days test in a 12-month period.

Robert says:
25 January 2024 at 9:00

Understood, and that makes sense that only one exemption can be claimed per annum.
Please can we proceed with the dispute, with the qualifying 12-month period being 1 January 2022 - 31 December 2022.

TaxTim TaxTim says:
30 January 2024 at 11:37

I have submitted your dispute.

If SARS allows it, you will be liable for tax on your foreign remuneration which exceeds R1,25m and unfortunately there will also be a penalty and interest due on the unpaid tax. The 'under-estimation' penalty will be due because you should have paid provisional tax during the year of assessment on the foreign remuneration above R1,25m. You could perhaps attempt to get this penalty waived as you made a genuine mistake in thinking your foreign remuneration qualified in full for the seafarer exemption.

We suggest you make a payment to SARS in the meantime of around R1,2m, while you await the outcome of the dispute, to avoid further interest accruing. Payment details can be found on the SOA.

SARS should issue an outcome and revised assessment within 60 working days.

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