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Saturday, September 1, 2007
Sales trigger

With effect from 1st September 2007 property sales by non-South African residents will be subject to a new withholding tax. It is levied in terms of section 35A of the Income Tax Act.
The tax is imposed when any person purchases immovable property in South Africa from a non-resident seller for an amount exceeding R2 million. “Immovable property” is deemed to include interests in certain property owning entities.
The tax must be withheld from the amount payable by the purchaser and paid over to the South African Revenue Service (SARS). It is levied at varying rates depending on the identity of the seller: 5% for a natural person; 7.5% for a company; or 10% if the seller is a trust.
The withholding tax represents an advance in respect of the seller’s liability for South African tax for the year of assessment in which the property is sold. The seller is still obliged to register as a South African taxpayer and submit a return for the relevant year, even if they have no other income taxable in South Africa. The seller must calculate the actual capital gains tax liability on the sale of the property and may have to pay more tax or may be entitled to a refund.
The seller may apply to SARS for a directive indicating that the purchaser need not withhold any tax from the amount payable or that a lower amount may be withheld. If a purchaser liable to pay the withholding tax does not make the necessary payment to SARS (as long as they knew or should reasonably have known that the seller was not a resident), that purchaser will be personally liable for the withholding tax due. Interest will be charged from the due date and a 10% penalty may be levied.
Conveyancers and estate agents acting in respect of a transfer giving rise to a withholding tax liability have to notify the purchaser of his obligations. If they do not comply with their obligations, they will be jointly and severally liable for the withholding tax due up to their remuneration in respect of that transfer.
This article has been written by Tim Desmond, Director - Tax and Commercial Departments Garlicke & Bousfield Inc. For more information please call him on Telephone: (031) 570 5300 or Cell Phone: 083 637 1852

Copyright © Insurance Times and Investments® Vol:20.8 1st September, 2007
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