In New withholding tax on property sales places new burden on conveyancers, Barry Ger explores the planned s35A amendment to the Income Tax Act 58 of 1962 ("the Act"), in which it is proposed that buyers be required to withhold an amount of tax from any amount due to a non-resident seller following a sale. As a background the writer notes that non-resident persons are subject to South African tax only on a source basis. They therefore have to register for tax and disclose their gains in their annual South African income tax returns paying the requisite tax thereon.
Unfortunately it is very difficult to enforce such a provision in practice, with some would-be taxpayers not even bothering to fill in tax returns, let alone pay any taxes. It is this problem that the "withholding tax" amendment seeks to address. The amounts depend on the nature of the seller so that:
- 5% of the amount payable must be withheld where the seller is a natural person;
- 7,5% where the seller is a company; and
- 10% where the seller is a trust.
These amounts are roughly half of the effective CGT rates imposed on the entities and they represent an advance payment or credit against the non-resident's income tax liability for the tax year in which the property is sold. In order to give some respite, the withholding requirement does not apply to sales of property where the selling price is less than R2 million.
The possible effect of the amendment on conveyancers or estate agents who assisted in the disposal of the property and who knew or should reasonably have known that the seller was a non-resident is onerous. In that they would be jointly or severally liable for the tax - limited, however, by the remuneration they received for their services.
The amendment is yet to come into operation as SARS wishes to establish procedures and also give estate agents and attorneys time to prepare adequate compliance procedures.
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