LEGAL MATTERS

Section 35A of the Income Tax Act No. 58 of 1962

The introduction of section 35A of the Income Tax Act No. 58 of 1962 (herein referred to as the Act), provides for the withholding of tax on payments made by purchasers of immovable property to nonresident sellers of immovable property.

The Act ensures that capital gains tax (CGT) due on the sale of immovable property by a non-resident is obtained and places certain statutory obligations on estate agents and conveyancers.

Liability for CGT over the disposal of immovable property and assets owned by non-residents has been difficult for SARS to ensure that it has been complied with; therefore the Act ensures compliance by all parties involved.

Regarding the acquisition of immovable property from a non-resident, the purchaser must withhold from the amount due to the non-resident seller.

The rate of withholding tax over the acquisition of immovable property from any person that is not a South African resident is dependent on whether the seller is a natural person (7.5% of the amount payable), a company (10% of the amount due), or a trust (15% of the amount due).

The withholding amount applies to the full purchase price, where the amount exceeds R2 million. The rate of withholding tax is an advance of the tax payable to SARS by the non-resident seller and does not consider the seller’s cost of the immovable property.

The estate agents and conveyancers are placed in a position where they are accountable for default on the recognition of a non-resident.

They have a fiduciary duty to uphold their legal obligations and inform the purchasers in writing whether the seller is not a South African resident for tax purposes, before payment has been made to the seller.

Section 35A provides that, any amount paid (excluding interest and penalties) by the purchaser; estate agent or conveyancer may be recovered from the Seller.