Section 35A of the Income Tax Act and its effect on property transactions in South Africa

According to the UN’s dataset, the number of South African-born persons residing outside of South Africa increased from 330,000 in 1990 to 900,000 in 2017, which is approximately 21 000 South Africans per year.
While it cannot be certain that all of these South Africans still have property in South Africa, there are a few that still own properties in South Africa while living abroad. Should you find yourself as one of those persons still owning a property in South Africa and wishing to sell the property, then for the conveyancing process and for the South African Revenue Service (“SARS”) purposes, section 35A of the Income Tax Act, 58 of 1962 (“the Act”), is a section that should be carefully considered.
Section 35A of the Act was put in place in order to prevent non-resident sellers of immovable property from disposing thereof without paying capital gains tax to SARS.
In terms of South African law, there are different types of residents, for example, a resident defined by the Act in terms of the so-called “physical presence test” and an ordinary resident defined in terms of South African common law. An individual is considered to be ordinarily resident in South Africa if they will return to South Arica after being abroad. If not ordinarily resident, the physical presence test will need to be used to determine such individual’s status as a resident or not, for tax purposes.
The physical presence test comprises of the following criteria, and to meet the requirements of the test to be considered a resident, an individual must physically be present within the
Republic for:
1. 91 days in total during the year of assessment under consideration;
2. 91 days in total during each of the five years of assessment preceding the year of assessment under consideration; and
3. 915 days in total during those five preceding years of assessment.
If the above requirements are not met, or if an individual meets the above requirements but is outside of the Republic for a continuous period of 330 days or more, such individual will not be regarded as a resident for tax purposes, meaning that individual will be subject to tax only on income that has its source in South Africa.
Section 35A of the Act is only applicable where the seller is considered a non-resident, based on the above questions and requirements not being met and where the immovable property being sold is in excess of R2 million.
Where the property is in excess of the above threshold, it is then required that the purchaser of such immovable property is to withhold funds from the amount due to the non-resident seller and pay the funds over to SARS. SARS will then use these funds to pay the seller’s Tax that is due to SARS.
Where the purchaser does not withhold the funds and where the purchaser knows or should have reasonably known that the seller is a non-resident, the purchaser will then be held personally liable for payment of such amount over to SARS.
Author: Faren van Wyk