Buyers: New Withholding Tax - 2007/04/24

Buyers beware - if your seller is a non-resident you have to withhold a portion of the purchase price and pay it over to the Receiver of Revenue.

Amendments to the Revenue Laws Amendment Bill, coming into effect on 1 September 2007, will have serious ramifications for those who buy property in South Africa from non-South African residents, says Bill Rawson, Chairman of Rawson Properties.

"If the purchase price of the property sold exceeds R2 million the amendments to the legislation stipulate that the purchaser, his conveyancer and his estate agent are responsible for investigating the seller's residence status. If they have any reason to suspect that the seller does not have a resident's permit they are legally bound to withhold 5% of the purchase price (7,5% if the seller is a company and 10% if the sale is from a trust) and this amount has to be paid to SARS within 14 days - which can be extended to 28 days if the purchaser is a non-resident.

The withholding tax, says Rawson, is an advance payment on the tax ultimately payable by the non-South African seller when he submits their tax return to SARS.

"If a purchaser knows, or should have known, that the seller is not a resident and fails to withhold the tax required, he becomes personally liable for the amount not paid. The purchaser will, however, not be liable if the estate agent and the conveyancer failed to notify him that the seller is not a resident. An estate agent and conveyancer who knows, or should have known, that the seller is a non-resident and who fails to notify the purchaser as required, is jointly liable for the withholding tax. The amount for which the estate agent or conveyancer is liable is, however, limited to the amount of the commission or conveyancing fee earned."

Looking at the impact of Capital Gains Tax in general, Rawson said that had it made surprisingly little difference to turnovers in residential property.

"Those who have held back from investing in property for fear of Capital Gains Tax have often, I have found, been misinformed on how it works," said Rawson.

"There is," he said, "one common error, i.e. to think that the tax is based on your total sales price."

"In reality, of course, CG Tax is based on the difference between the full sale price and the base cost when it was bought. SARS will also make allowance for improvements carried out by the seller but not for maintenance costs. In the case of natural persons, 25% of the net Capital Gain is added to the taxpayer's income for the tax year in question and taxed at the applicable rate for that particular taxpayer. An annual exclusion of R12 500 capital gain is granted to individuals and special trusts."

(Extracted from Property24.com dated 27 April 2007)