WHO QUALIFIES FOR WITHHOLDING TAX IN TERMS OF SECTION 35A OF THE INCOME TAX ACT 58 OF 1962:
Many South Africans have decided to emigrate and sell their homes in South Africa and likewise many foreign nationals have left the country and sold their homes. What tax implication will this have on an individual in respect of Section 35A withholding tax.
When the sale of immovable property takes place between a Non-Resident Seller and a Purchaser, the Purchaser will withhold an amount from the purchase price in order for Withholding Tax to be paid over to SARS.
WHO DOES WITHHOLDING TAX APPLY TO :
Withholding tax applies to Non-Resident Sellers of immovable property in respect of the sale of immovable property where the purchase price exceeds 2 (Two) Million Rand.
WHEN IS AN INDIVIDUAL CONSIDERED A NON -RESIDENT:
Two tests are applied when considering if an individual is resident for tax purposes, namely whether or not the individual is ordinarily resident in accordance with the common law interpretation. If the individual is not considered ordinarily resident, then the physical presence test as set out in the Income Tax Act 58 of 1962 will be applied,
The South African Courts have considered the definition of ordinarily resident and have highlighted certain factors that can assist in determining if an individual is ordinarily resident in South Africa, some of which are the individual’s intention to be ordinarily resident in the country, the individuals most fixed and settled residence, the individuals fixed abode and personal factors like employment, social relations and nationality. In addition an individual will be considered to be ordinarily resident in South Africa, if South Africa is the country to which that individual will naturally and as a matter of course return after his or her wanderings.
If the individual is not considered to be ordinarily resident, the physical presence test in terms of Section 1(1) of the Income Tax Act 58 of 1962,is applied, the individual must be present in the Republic for periods exceeding:
- 91 days in total during the year of assessment under consideration;
- 91 days in total during each of the five years of assessment preceding the year of assessment under consideration; and
- 915 days in total during those five preceding years of assessment.
If the individual has failed to meet the above requirements they are considered non-residents. Once the above has been ascertained the following factors are considered to further determine if Withholding Tax is applicable to the Non-Resident:
- If the purchase price of the property is 2 (two) Million Rand or less, Withholding Tax is not applicable;
- If the purchaser pays a deposit in respect of an immovable property transaction ,Withholding Tax Is not applicable until such time as the agreement becomes unconditional (i.e. the purchaser pays the balance of the purchase price and/or the Purchaser obtains a mortgage bond in respect of the balance of the purchase price) at which time the purchase price will be assessed and it will be determined if Withholding Tax is applicable.
THE INDIVIDUAL IS CONSIDERED A NON-RESIDENT AND THE PURCHASE PRICE IS ABOVE TWO MILLION RAND, WITHHOLDING TAX IN TERMS OF SECTION 35 A of the INCOME TAX ACT 58 OF 162 IS APPLICABLE. WHAT DOES THIS MEAN?:
The Purchaser in the immovable property transaction sale will be required to withhold the following amounts in respect of the transaction:
- 7,5% of the amount payable, if the seller is a natural person;
- 10% of the amount payable, if the seller is a company; and
- 15% of the amount payable, if the seller is a trust.
In practice the Seller’s conveyancer/transferring attorney or accountant will make application to SARS for a directive on the amount payable directly to SARS in respect of Withholding Tax.
