Capital Gains Tax

South African residents are liable for the payment of Capital Gains Tax ("CGT") on the disposal of any asset, subject to certain limited exceptions. Nonresidents, however, are only liable to pay CGT on the disposal of the following:

Immovable property situated in South Africa, including any right or interest in immovable property (this also includes an interest of at least 20% in a company where 80% or more of the value of the net assets of the company is attributable, directly or indirectly, to immovable property in South Africa);

Assets of a permanent establishment of a nonresident through which trade is carried on in South Africa.

CGT is payable in the year in which the asset is disposed of and is calculated by adding 25% of the capital gain, or profit, to the individuals income for that year deducting the annual rebate of R10 000 and taxing that income at the individuals marginal rate of income tax. The maximum marginal income tax rate for individuals in South Africa is at present 40% (reached at taxable income levels above R300 000). The capital gain is calculated and disclosed in the individual’s income tax return for the year in which it is sold. Thus, if a non-resident disposes of an immovable property in any year of assessment and is not already registered as a South African taxpayer, he or she will have to register as such and submit an income tax return reflecting the calculation of the capital gain and will be liable for the payment of CGT on that gain.

If the asset is held by a Trust, the Trust pays CGT on 50% of the gain at 40%, whereas a company or close corporation pays CGT on 50% of the gain at a tax rate of 29%

CGT became effective on 1 October 2001 and is thus payable only from that date. The amount of a capital gain is calculated either by deducting the value of the property as at 1 October 2001 (together with the costs of acquiring and improving the property) from the proceeds on disposal of the property or by apportioning the amount of time the property was owned between the period before 1 October 2001 and the period after that date.

You may use the 20% calculation if you do not have records of the acquisition of the costs of the property and you do not have a valuation as at October 1, 2001. SARS will deem 20% of your proceeds to be the base cost of the asset.

South African residents do not pay CGT on the first R1-million of profit made on the disposal of their primary residence. However, non-residents will not qualify for this exemption if their primary residence is not in South Africa.

WITHHOLDING TAX FOR NON-RESIDENTS

There is a proposed amendment to the law whereby any person who acquires any interest in South African immovable property from a non-resident must withhold amounts actually paid. ie:

5% if it is a non-resident individual seller
7.5% if the non-resident seller is a Company
10% if the non-resident seller is a Trust