Section 35A of the Income Tax Act came into effect on 1 September 2007 and sets out the capital gains tax consequences of the sale of immovable property situated in South Africa in instances where the seller is not a South African tax resident.
In terms of these provisions, the purchaser of the immovable property is obliged to withhold the specified amount of tax from the purchase price payable, provided that the property is disposed of for an amount in excess of R2 million.
The amount to be withheld in these circumstances is 7.5% of the purchase price where the seller is a natural person, 10% of the purchase price where the seller is a company and 15% of the purchase price where the seller is a trust.
The amount of tax withheld in these circumstances must be paid to the South African Revenue Service (“SARS”) within 14 days after the date on which the amount was so withheld in instances where the purchaser is a South African tax resident. The period is extended to 28 days should the purchaser not be a South African tax resident.
The non-resident seller of the immovable property may, however, request a tax directive from SARS confirming that tax be withheld at a lower or even zero rate, depending on the specific circumstances applicable to that non-resident seller. In this regard, SARS will take into account factors such as any security furnished for the payment of any tax due on the disposal of the immovable property, whether the seller is subject to tax in respect of such disposal and whether the actual tax liability of the non-resident seller is less than the amount to be withheld in terms of section 35A.
In order to request such a tax directive, the non-resident seller must complete the relevant form NR03 and submit this to SARS, together with the offer to purchase, the relevant capital gains tax calculation and all other relevant supporting documentation. According to SARS’ website, the processing of this declaration or directive application is 21 working days.
The amount withheld from any payment to the non-resident seller is an advance payment in respect of that seller’s liability for normal tax for the year of assessment during which the property is disposed of by the non-resident seller.
Please note that if the non-resident seller does not submit an income tax return in respect of that year of assessment within 12 months after the end of that year of assessment, the payment of the amount under section 35A is a sufficient basis for an assessment in terms of section 95 of the Tax Administration Act.
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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE).