Non residential property owners - retention of proceeds of sale

By Coert Coetzee

From 1 September 2007, the first phase of retention from the proceeds of the sale of property involving Non-Resident sellers rolls out.

Any property transaction over R2m, sold after 1 September 2007, will be subject to a retention by the transferring attorney of 10% of the sale price.

The only way for an owner to avoid this deduction is by the timeous application to the Receiver of Revenue for a Tax Directive instructing the transferring attorneys to deduct a specified amount.
It is very difficult for the Receiver to collect Capital Gains Tax from non-residents after the property has been sold and proceeds transferred out of the country. Hence, the rationale behind this move by the Receiver of Revenue, to place the responsibility for tax collection in respect of non-resident owners in the hands of the transferring attorneys. Currently, many non-resident property owners are not registered for tax and thus do not declare income received in this country from rental. South Africa's taxation laws state that any income derived in this country is subject to tax even if the receiver of such income is a Non-Resident.

If a Tax Directive is not obtained, it will be up to the Seller to apply to the Receiver for the payment to him/her or it, any balance that may remain after settlement of taxes due. This will involve the completion of an Income Tax Form wherein the owner must declare the income derived and submit suitable documentation so that the correct Capital Gains Tax is established.

It is a current requirement of the Deeds Office that an Income Tax Number be supplied for both Seller and Purchaser when a transfer is lodged Thus the non-resident Seller has to be registered before the transfer can take place. The result of this is that even though the property transaction may be less than R2 m, and a retention therefore not prescribed, the Seller will be asked to complete a tax return at the end of the financial year in which the property is sold and may well asked to pay not only Capital Gains Tax, but also tax on income received.

Consequently, it would be wise to make sure your non-resident Seller has his "ducks in a row" before beginning the transfer process.