6 “RESIDENCE” 6.1 Residence - Meaning of “ordinary resident” 6.1.1 COHEN v COMMISSIONER FOR INLAND REVENUE 13 SATC 362 (A) – 1945 Importance Classification: Very important as it was the first South African case to analyse the meaning of “ordinary resident”. Facts: The taxpayer, who was domiciled in the Union, was one of two directors of a company carrying on business in the Union. He was requested by his company to go overseas to act as the company’s buyer in view of the difficulty of obtaining merchandise, caused by war conditions. He left the Union in June 1940, accompanied by his family. The permit authorising his departure contained the words “duration 9 months”. In October 1940, he arrived in the United States of America and established his family in an apartment in New York, where he carried on the business operations which were the purpose of his visit. In 1941, the taxpayer was granted an extension of 12 months in respect of his permit to remain in America. From that date and up to 30 June 1942, neither the taxpayer nor his family had returned to the Union. In 1939, the taxpayer had leased a flat in Johannesburg for a period of 5 years and had furnished it. This flat had been sub-let, with the furniture, during the period for which the taxpayer had been in America. During the year ended 30 June 1942, the taxpayer had derived dividends from public companies carrying on business in the Union. He claimed to be exempt from super-tax in respect of these dividends by virtue of the provisions of section 30(1)(a) of Act 31 of 1941, which exempted individuals “not ordinarily resident nor carrying on business in the Union.” Issue: Whether the taxpayer was “ordinarily resident” in the Union? Held: That the question whether an individual was resident or ordinarily resident in any particular area for the purposes of the Income Tax Act was one of fact. That the question whether an individual was in any one year of assessment ordinarily resident in the Union or elsewhere was not to be determined solely by his actions during that year of assessment; his conditions of ordinary residence during that year could be determined by evidence as to his mode of life outside the year of assessment under consideration; that physical absence during the whole of the year of assessment was not decisive of the question of “ordinary residence”. On the facts, the taxpayer was found to be still “ordinary resident” in South Africa. The judge referred to the fact that a person’s ordinary residence was the country to which he would naturally and as a matter of course return from his wanderings, his usual or principal residence and could be described as his real home. Notes: This case was decided in 1945. The residence basis of taxation was only introduced in South Africa in 2002. Nevertheless, the concept of “ordinary resident” is used as one of the tests (the other being the physical presence test) for determining the meaning of residence as defined in section 1 of the Act. Thus COHEN’S case, which explained the 38 TOE409-X/102 concept of “ordinary resident” is the authority, together with KUTTEL’S case for defining the
meaning of “ordinary resident”. The Special Court had found that Cohen was not carrying on business in South Africa since the mere earning of dividend income did not constitute the carrying on of a business in South Africa. This aspect was not taken on appeal. See also SARS Interpretation Note 3; ”ordinary resident”, which summarises the factors taken into account in determining whether an individual is “ordinary resident” in South Africa or not. As regards the residence of a juristic person, see Interpretation Note 6: “effective management”. Lesson: Refer to KUTTEL’S case.