If you are buying South African property from a non-resident, you have to ensure that the stipulated SARS withheld sum is paid upfront before the transaction takes place
Rawson Finance, the Rawson Property Group’s bond origination division, managed by Mike van Alphen, has regularly had to point out to people buying from non-residents that SARS have stipulated, since 1st September 2007, that any person who has acquired property from a non-resident since that date has been required to withhold a portion of the sales sum paid to the seller, or any agent involved on his behalf, if the total amount involved is R2 million or more.
This measure, said van Alphen, was aimed at ensuring that non-resident sellers met their obligations with regards to the South African Capital Gains Tax — and it has proved effective in doing this.
For the sake of those people who are still not familiar with Capital Gains Tax on properties, said van Alphen, it is calculated on the actual achieved selling price minus:
1.) The agent’s fee
2.) The original purchase cost
3.) The transfer duties
4.) Conveyancing fees
5.) The cost of any improvements or extensions undertaken by the seller (this allowance does not, however, cover routine maintenance such as painting)
If the non-resident seller is a natural person, for example, not a closed corporation, company or trust, 5% must be withheld. If the seller is a company, the withheld sum is 7,5% of the total and if the seller is a trust, it is 10%.
However, said van Alphen, the tax consultant Fanus Jonck, who has given valuable advice to his division from time-to-time, has on many occasions secured a directive from SARS, enabling the seller to avoid paying the withholding sum altogether or to reduce its amount.
This, said van Alphen, as Jonck has shown, is possible if the non-resident seller can provide adequate security through a transfer deed or some other means, or if he has other assets in South Africa which SARS could sequestrate if the Capital Gains Tax on the sale is not met.
In some cases, the seller’s liability for the tax is less than the amount due. This happens most commonly, for example, when the seller sells for less than he paid or where improvements were made that have eaten into his capital gains. Sellers that bought their property before 1 October 2001 should also be aware that the capital gain before that date is not taxable.
As there can be lengthy delays before SARS refunds any amounts owing to the non-resident seller on withheld sums, said Jonck, it will pay the seller to liaise with consultants, such as himself, and then investigate the possibility of getting a special tax directive or minimizing their withheld payment.
It should be noted, said van Alphen, that any person leaving South Africa as an emigrant is also deemed to be a non-resident and will be subject to the full Capital Gains Tax as long-standing non-residents.