Capital Gains Tax and International Property Investors

Many wrong assumptions are made when international property investors sell their property in South Africa and receive no guidance or assistance with their CGT. Here are a few facts which may be of interest to these sellers:

FACT: if the property is sold in South Africa for a profit, CGT is payable in respect of that profit here in SA to the local Receiver of Revenue even if the seller pays tax primarily in a country abroad;

FACT: CGT is not a stand-alone tax. In South Africa, CGT forms part of your annual income so if you sell a property, the ultimate profit is included with your other income before taxed on the local income tax scales;

FACT: the R2mill primary residency exclusion is available to SA TAX RESIDENTS only and also only if they lived in the property mainly as a primary residence before the sale of the property. The R2mill exclusion is NOT AVAILABLE to tax non-residents even if the person lives in South Africa permanently.

Tax Residency is therefore the determining factor for the primary residency exclusion.

With regards to the South African expatriates who work abroad on contract, tax residency often is blurred as these offshore workers are usually paid in foreign currency somewhere offshore where the income tax rate is 0% but because they live in SA in between contracts and returns to SA, SARS deems such contract workers as tax residents of South Africa and their foreign income is then taxable in South Africa. These property owners will then probably be allowed the R2mill primary residency exclusion as long as they had been in their property for more than 6 months in the year preceding their property sale. If not then the exclusion will not be allowed.

FACT: tax non-residents are subject to Section 35 of the Income Tax Act which provides that 7,5% of their sales price is retained and paid to SARS as a PROVISIONAL CAPITAL GAINS TAX. However, if the real CGT is less than the 7,5%, then they are allowed to apply for a CGT Directive from SARS prior to the property transfer registering and in which event only the real CGT is paid to SARS and the full balance proceeds is payable to the seller.

FACT: if for some reason the conveyancing attorney withholds the 7,5% and pays it to SARS as provisional CGT, you will only be able to claim the refund tax from SARS with the submission of a full income tax return at SARS (usually during the period from June to November following the end of the financial year in which the property was sold).

Here is a good example of the benefits of obtaining help with the Directive:

These clients sold their property for R2,950,000.00. 7,5% of this is R221,250.00.

After calculating the real CGT, it is found that the real CGT is R0!

Cape Town Date of Sale: 01 September 2021
Mr & Mrs Husband and wife  
Dates of Birth:    
Tax reference:    
Income Tax Payable:   2022 Year of Assessment
Sales Price   R2,950,000,00
less Base Cost   R2,440,000,00
     
Base Cost R2,440,000,00  
Purchase Price R2,300,000,00  
Transfer Costs (GAZETTED) R100,000,00  
Improvements R30,000,00  
Agents Commission N/A  
Compliance certificates Not known yet  
Directive fee R10,000,00  
Net GAIN   R510,000,00
     
MR    
Gross gain (50%)   R255,000,00
less: annual CGT exemption   -R 40 000,00
    R215,000,00
Inclusion Rate   R86,000,00
     
TAXABLE INCOME (which will be added to other annual income) R15,480,00
Primary income tax rebate (below 65)   R15,714,00
Secondary income tax rebate (below 75) N/A
Tertiary income tax rebate ((above 75) N/A
INCOME TAX PAYABLE   R 0,00
     
MRS    
Gross gain (50%)   R255,000,00
less: annual CGT exemption   -R 40 000,00
    R215,000,00
Inclusion rate   R86,000,00
TAXABLE INCOME (which will be added to other annual income) R15,480,00
Primary income tax rebate (below 65)   R15,714,00
Secondary income tax rebate (below 75) N/A
Tertiary income tax rebate (over 75)   N/A
INCOME TAX PAYABLE   R 0,00
TOTAL R 0,00

 

If you are a foreign seller or a tax non-resident seller, contact our Cape Town office for assistance with the CALCULATION of the CGT and for help submitting the CGT DIRECTIVE to SARS in the event that the real CGT is less than 7,5%.

melaniec@bkr-inc.co.za

Cape Town Office

THE COLLOSEUM, Foyer 3, Floor 1, Century Way, Century City, 7441

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