Who is liable to pay CGT?
Taxpayers, including individuals, trusts, companies and close corporations, will be taxed on the profit they make when they sell an asset or property. A resident, as defined in the Income Tax Act 58 of 1962, is liable for CGT on assets located both in and outside South Africa. A non-resident is liable for CGT only on immovable property in South Africa or assets of a "permanent establishment" (branch) in South Africa. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property.
Some persons such as retirement funds are fully exempt from CGT. Public benefit organisations may be fully or partially exempt. Normal rental income from a property is revenue, which is declared on your annual income statement and therefore not subject to CGT.
When should it be paid?
CGT becomes payable when you receive your income tax assessment (IT34). As a registered taxpayer you will simply declare your capital gains and losses in your return of income covering the relevant year of assessment. Keep the records necessary to determine a capital gain or loss in a safe place as many years may elapse, between the time you acquire an asset and dispose of it.
If you are buying South African immovable property from a non-resident seller you must complete form NR02 and an IRP6(3) using the sellers income tax reference number and withhold the tax at the rate prescribed in section 35A(1). You may withhold at a lower rate of tax if the seller supplies you with a tax directive from SARS authorising you to withhold at a lower rate. You must then submit the NR02 and IRP6 (3) together with your payment to SARS. If the seller is not registered for income tax, the NR02 and offer to purchase must be forwarded to nres@sars.gov.za, so that the seller can be given an income tax reference number before payment is due.
A non-resident seller of immovable property may be entitled to request that tax be withheld at a lower or even zero rate under section 35A(2). The reasons why a sale would attract a lower rate of CGT will depend on the facts of the particular case, for example, the person may be fully exempt from CGT, such as a foreign state, or in the case of an individual, having a lower level of taxable income or have disposed of the property at a loss. To request a tax directive you must complete form NR03 and submit it together with the offer to purchase, tax calculation and supporting documentation to nres@sars.gov.za or use one of the other submission methods described on the form.
For the purposes of provisional tax a taxable capital gain is excluded from the basic amount. If you are not permitted to use the basic amount for the purposes of your second provisional tax payment, you will have to take into account any taxable capital gain that arose or will arise during the year of assessment in estimating your taxable income. Likewise, a taxable capital gain must be taken into account when making any third topping up provisional tax payment.
The withholding tax must be paid to SARS:
- within 14 days of the date on which the amount was withheld by a resident buyer;
- within 28 days of the date on which the amount was withheld by a non-resident buyer.
The above will all be managed by the conveyancing attorney managing the transfer of the property.
While this is a very broad overview of what to expect when it comes to CGT, it is always advisable to seek professional assistance to ensure all regulations are complied with and calculations are done accurately, says Hutchison.