With the surge of South Africans currently emigrating, tying up their financial affairs and ensuring all their taxes due to SARS (South African Revenue Services) is of utmost importance.
One such tax often overlooked is withholding tax in terms of Section 35A of the Income Tax Act 58 of 1962.
Withholding tax is provision for Capital Gains Tax (CGT), which is calculated on the gross selling price of a property and at the following rates:
- 7.5% when the seller is a natural person;
- 10% when the seller is a company;
- 15% when the seller is a company
A non-resident seller who sells their immovable property for more than R2 million may under certain circumstances be liable for payment of withholding tax to SARS.
To determine whether or not the seller in question is regarded as resident in South Africa, two tests are looked at, namely:
1. The ordinary residence test; and
2. The physical presence test.
An individual will be deemed to be a resident for tax purposes if during the year of assessment, the individual passes the ordinary residence test or failing this, the individual passes the physical presence test.
In terms of the ordinary residence test, an individual is considered to be resident when the individual returns to South Africa from their “wanderings” (international holidays) and who regards South Africa to be their principal place of residence, otherwise known as what they regard as their permanent home.
In terms of the physical presence test, an individual is considered to be physically present in South Africa if the individual is:
- longer than 91 days in total during the year of assessment;
- longer than 91 days in total during each of the five years preceding the year assessment; and
- longer than 915 days in total during the five years preceding the year of assessment.
If the individual is not in South Africa for continuous period of at least 330 days the individual will not be regarded as a resident of South Africa.
As soon as it is established that the seller is a non-resident and the sale price of their immovable property is more than R2 million, it is the duty of the conveyancer to withhold the withholding tax in the firm’s trust account before the balance of the sale proceeds is paid to the seller following registration of the property into the name of the purchaser.
The seller does have an option to request a directive from SARS for the sale transaction to be exempt from withholding tax or to have the rate of the withholding tax reduced.
In such an instance, the seller will complete form NR03, which will be submitted together with the sale agreement to SARS. SARS can process this application within 21 business days.
It is then imperative that immediately on receipt of the sale agreement, the conveyancer must conduct the necessary checks to establish if the seller is a non-resident and whether Section 35A of the Income Tax Act applies and take the necessary steps to ensure proper tax accountability to SARS.
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