An impending amendment to the revenue laws could cause a purchaser of immovable property to pay up to 10% of the purchase price by way of tax on behalf of a seller, plus penalties. The legislation is yet to come into operation, but is imminent – pending South African Revenue Services (SARS) addressing its internal bureaucratic requirements.
The proposed section 35A of the Income Tax Act introduces practical measures to ensnare non-residents in the Capital Gains Tax (CGT) net that applies equally to residents and non-residents.
SARS is aware of the profit taking of non-residents in local fixed property speculations where fluctuations in the rand have multiplied profit exponentially. While these profits have been subject to CGT, the difficulty of collecting the CGT is immense.
Hence, the introduction of a withholding tax upon the proceeds of a sale of local fixed property by a non-resident. This tax is payable to SARS within 14 or 28 days of settlement, depending on whether the purchaser is resident or non-resident. Penalties will apply on late payment.
There are, however, filters of protection for the purchaser. Where estate agents or conveyancers are involved in the transaction and know or should have known that the seller was a non-resident and this was not revealed to the purchaser, these other parties will bear financial liability. This will be limited to their remuneration derived from the transaction and will be joint and several.
So, when purchasing fixed property, it is necessary to make sure that, in the first instance, the estate agent has ensured that the seller is a resident of South Africa and that there is written confirmation to that effect. Further, one must ensure that the conveyancer confirms that an investigation has been conducted.
John Gomes is a director of the law firm, Cliffe Dekker. He is based at the Cape Town regional office.
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