The Financial Services Tribunal has set aside a Pension Funds Adjudicator determination that failed to identify and apply the statutory tests for tax residence and properly evaluate the evidence submitted by a retirement annuity fund member living abroad.
The case concerned a member of the Discovery Investment Retirement Annuity Fund who sought to withdraw his benefit on the basis that he had not been a South African tax resident for the required uninterrupted period of three years.
The fund declined to apply for a tax directive because it was not satisfied that he had provided sufficient proof of his tax non-residence, and the Adjudicator dismissed his complaint.
Although the Tribunal found that the member had not, on the material before it, established when he ceased to be a South African tax resident or which limb of the statutory definition of “resident” he relied on, it held that the Adjudicator’s determination could not stand because the relevant statutory provisions had not been properly applied and the evidence had not been adequately considered.
Member sought access to his retirement benefit
The member submitted an affidavit, an extract from the Dutch population register, a copy of his Netherlands passport, and a Danish tax assessment in support of his claim.
The fund was not satisfied that these documents proved the required period of tax non-residence. It declined to apply to the South African Revenue Service for a tax directive pending the receipt of further documents, including a recent certificate of residence from the tax authority in the member’s country of residence, passport evidence showing his departure from South Africa, confirmation from SARS of the date on which he ceased to be a South African tax resident, and proof of a South African blocked rand bank account.
The member maintained that some of the documents no longer existed or could not reasonably be obtained because of the time that had lapsed since he left South Africa.
The Adjudicator found that the member had not established his entitlement and dismissed his complaint.
Although her reasons contemplated that he would provide further information and the fund would then apply for a tax directive, her formal order did not contain those directions.
The statutory test
The member’s entitlement to withdraw his RA benefit before electing to retire depended on the definition of “retirement annuity fund” in the Income Tax Act. The relevant provision permits such a withdrawal where the member has ceased to be a South African tax resident and has not been a resident for an uninterrupted period of three years or longer.
In its decision of 14 August 2026, the Tribunal said this provision turned on the meaning of “resident” in section 1(1) of the Act. Neither the fund nor the Adjudicator had properly engaged with that definition.
For a natural person, the definition requires consideration of ordinary residence as the primary test. The physical-presence test applies only where the person is not ordinarily resident in South Africa at any time during the relevant year of assessment. A person is also excluded from the definition if a double-taxation agreement deems that person to be exclusively resident in another country.
The date on which residence ceased was critical because the member had to establish an uninterrupted three-year period of non-residence.
The Tribunal noted that passport entry and exit records primarily address physical presence. They do not necessarily establish ordinary residence, which is a question of fact and degree concerning a person’s usual or principal residence and real home.
Affidavit evidence may therefore be relevant because it can address the person’s intentions, personal connections, and way of life. Such evidence may ultimately prove insufficient, but it must first be considered and its weight assessed.
Member had not proved his entitlement
The Tribunal found that the member had not discharged the onus of establishing his entitlement. Although the material indicated that he had lived outside South Africa for many years, he had not identified which limb of the definition of “resident” he relied on or the date on which he claimed to have ceased being a South African tax resident.
The Tribunal said the Adjudicator had therefore reached the correct result on the material before her. However, that result could not sustain a determination in which the decisive legal test and the evidence had not been properly addressed.
Evidence must be properly evaluated
The Adjudicator’s determination did not engage with ordinary residence, the physical-presence test, the possible effect of the South Africa-Netherlands double-taxation agreement, or the date on which residence allegedly ceased. Nor did it properly analyse the documentary evidence submitted by the member.
The Tribunal said a finding that evidence is insufficient must be supported by reasons explaining why it falls short. This was particularly important because the Adjudicator had not interrogated the fund’s assessment of the evidence, although its sufficiency was the decisive issue in the complaint.
The Adjudicator’s office is inquisitorial. Where a fund advances an unsupported assertion on the decisive issue in a complaint, the Adjudicator may, and in an appropriate case must, require the fund to substantiate it.
The fund’s requirements focused heavily on documents showing physical movement between countries. But passport records primarily address physical presence and do not necessarily establish ordinary residence. A person may be physically absent from South Africa for many years while remaining ordinarily resident here. Conversely, a person may cease to be ordinarily resident on an identifiable date without a passport stamp recording that event.
The Tribunal said the fund was entitled to require proof, but it had to assess the material against the statutory test, explain the specific respects in which it considered the evidence insufficient, and identify what further information was required to address those deficiencies.
The fund had not considered the contents of the affidavits and assessed the weight to be attached to them. It had also not considered whether the foreign documents could be relevant to the exclusion under the applicable double-taxation agreement.
Simply repeating a standard list of documents did not adequately inform the member of what he had to establish, particularly after he had explained why some of the requested documents were no longer available.
Administrative requirements must be supported by the fund rules
The Tribunal also questioned the fund’s requirement for proof of a South African blocked rand bank account.
It found that this requirement was an incident of the formal-emigration regime, which ceased to apply for these purposes on 1 March 2021. Nothing in the fund’s rules required payment into a South African or blocked rand account, and a requirement in an administrative claim form could not expand the registered rules binding the fund under section 13 of the Pension Funds Act.
SARS must have an opportunity to consider the evidence
The Tribunal also considered the respective roles of the fund and SARS in the tax-directive process.
An RA benefit cannot be paid until the required tax directive has been obtained. The decision whether to issue the directive rests with SARS, and neither the Adjudicator nor the Tribunal can direct SARS in that regard.
However, only the fund or its administrator can submit the application for the directive. The member, the member’s attorney, or a tax practitioner acting on the member’s behalf cannot initiate the process independently.
The Tribunal said that where a member has provided the information and documentation reasonably available to him and explained on oath why further material cannot be produced, the proper course is for the fund to submit the application with the available material, record any reservations it has, and seek SARS’s decision or guidance on whether further information is required.
The fund remained responsible for assessing whether the member had established an entitlement under its rules and did not have to certify facts of which it was not satisfied. However, it could record its reservations in the application rather than treating its assessment of the available material as final and thereby preventing SARS from deciding whether the requirements for a tax directive had been met.
A refusal to submit the application does not merely delay SARS’s consideration. It prevents that consideration from taking place because the member has no independent means of initiating the process.
Determination set aside
The Tribunal also found that the Adjudicator’s order did not follow from her reasons. Her reasons contemplated that the member would provide further information and that the fund would then apply for a tax directive and pay the benefit, but her formal order simply dismissed the complaint.
The Tribunal said reasons contemplating a conditional and forward-looking outcome could not support an order that foreclosed that outcome.
It could not substitute its own decision for that of the Adjudicator, nor could it order payment in the absence of a tax directive. It therefore set aside the determination and remitted the complaint to the Adjudicator for reconsideration.
The Tribunal suggested that the reconsideration might be assisted if the member was required to identify the statutory basis and date on which he claimed to have ceased being a South African tax resident. The fund could, in turn, be required to identify which part of the statutory definition it had applied, explain why it considered the available evidence insufficient, and state what further documentation it required and where that documentation could be obtained.
The decision does not establish that the member is entitled to withdraw his RA benefit. Its effect is that the complaint must be reconsidered against the correct statutory test, with the evidence properly evaluated and the reasons for any adverse conclusion clearly explained.
