Check-up the seller

Are you looking to buy a property? From 1 September purchasers of fixed property worth more than R2-million will be required to deduct a withholding tax from the price paid to the seller, if the seller is a non-South African resident.

This means the onus lies with you, the purchaser, and your conveyancer or estate agent to determine whether the seller is a non-resident. If you don't, it could make you liable for the tax.

Doelie Lessing, a tax lawyer with Maitland, says that the property withholding tax was made law in 2004 but the minister of finance only recently announced its effective date.

Measure to assist authorities

The rate of withholding tax will depend on the entity of the non-resident seller; five percent for a natural person, 7.5 percent for a company and 10 percent for a trust.

“The development is regarded as a measure to assist the tax authorities with their tax collection duties, as it often is difficult to track down non-residents in order to collect taxes from them,” Lessing says.

According to Lessing, the tax payment is part of the non-resident's "normal tax" liability in South Africa, which includes income tax (where the non-resident holds the property in question for speculative purposes) and capital gains tax.

It is a withholding tax and therefore the non-resident seller will receive credit for the tax already paid on his behalf when paying South African tax.

Estate agent liable for tax

In practice, as the purchaser you must deduct the tax from each payment to the seller, and then pay it over to Sars. Failure to deduct could result in your being personally liable for the tax.

However, "the purchaser will be absolved from the liability where an estate agent or conveyancer knew or should reasonably have known that the seller is non-resident and did not notify the purchaser.

"In such a case the estate agent and conveyancer are jointly and severally liable for the withholding tax. Any withholding tax paid by the purchaser, estate agent or conveyancer can, however, be recovered from the non-resident seller,” says Lessing.

In certain circumstances, the non-resident seller can apply to Sars to have the tax withheld at a lower or zero rate.

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