SA Tax Problems - Could delay your property transfer
Buyers of property should ensure that their tax affairs are in order or they could face serious transfer delays. SARS have embarked on a thorough investigation into a person’s tax affairs when assessing documents for the purpose of transfer duty. Any issues such as unpaid PAYE, SITE, income tax or outstanding tax or VAT returns could delay the issue of the transfer duty receipt and in turn, delay the registration of the transfer concerned.
Depending on the nature of the query, the property transfer may be delayed for some time. A party could protect him/herself by including a clause in the sale agreement, whereby the other party warrants its tax affairs are up to date. Should that party’s tax affairs be queried by SARS, it will be in breach of the agreement. The aggrieved party could then proceed to cancel the sale agreement or, in the case of the seller, invoke the ‘moral’ clause in the agreement, whereby the defaulting purchaser is charged interest on the purchase price in lieu of the delay.
Every transfer of immovable property requires a transfer duty receipt from SARS to be registered at the Deeds Office. Even if the transaction concerned is exempt from the payment of transfer duty, the necessary documents are still sent to SARS in order to obtain an exemption receipt. The Deeds Office will not register a transfer unless it has the necessary receipt from SARS either proving the transfer duty has been paid or the transaction has been exempt from the payment of transfer duty. If SARS will ask the conveyancing attorney who submitted the documents to inform the relevant party to contact SARS directly.
Due to privacy reasons, SARS will only discuss the exact nature of the problem with the individual concerned or someone who has a general power of attorney to deal with such affairs. Only once the outstanding issue has been attended to, will SARS issue the transfer duty receipt.
SOUTH AFRICA - TAX PLANNING
When planning your investment in South Africa it is essential to have an understanding of the tax laws of the country. Due to the eccentric nature of worldwide taxation systems, it is recommended that you consult a tax expert when deciding to make your South African property purchase.
Tax on Rental Income
Property investors in South African will have to pay tax on the received income at the normal South African rates after expenses, such as mortgage interest, have been deducted. South Africa has double taxation agreements with many countries and the method for taking advantage of this relief will depend on the specific agreement between your home country and South Africa.
Capital Gains Tax
Capital Gains Tax (CGT) is applied to the sale of all fixed property in South Africa and, for non-residents, this becomes due when the property is sold. The expenses incurred in improving a property can be deducted from the capital gain as well as other costs. The capital gain is declared in the income tax statement in the year the property is sold.
“The Deeds Office will not register a transfer unless it has the necessary receipt from SARS either proving the transfer duty has been paid or the transaction has been exempt from the payment of transfer duty.”
Value Added Tax (Vat)
There is no VAT charged on the purchase of a property unless it is a new build in which case VAT is built into the purchase price. Neither are rents on residential properties subject to VAT, but is levied at the rate of 14% on commercial properties.
Inheritance Tax was abolished when Capital Gains Tax was introduced in 2001. However, at the time of death the owner of the property is deemed to have disposed of it and CGT becomes due at this point.
Stamp Duty on property purchase is not charged in South Africa. Rental agreements, however, are liable to Stamp duty although the first R500 is exempted.
Municipal taxes, or property taxes, are charged for the maintenance of local services and typically vary from province to province as well as individual municipalities. The municipal valuation of the property is used to calculate the amount of tax due.
South Africa follows a revenue-based income tax system meaning that income earned from a South African source will be subject to ordinary income tax. Non Residents are liable for tax on a more limited basis and their liability is dependent on the source of their gross income being a South African source.
Any rental earned by non-residents in respect of South Africa properties will be subject to income tax and it is the responsibility of the non-resident to register as a South African Tax Payer.
Exchange Control/Repatriation of Funds
All funds introduced from outside South Africa to acquire fixed property within South Africa may be repatriated together with any profit on resale of the property, provided, the title deed of the property has been endorsed “non-resident”.
Similarly, funds introduced to acquire shares in a company/members interest in a close corporation may be repatriated together with any profit on resale, provided, the relevant securities have been endorsed “non-resident”. Funds, introduced into South Africa in the form of a foreign loan to fund acquisitions of corporate entities which own property in South Africa, may be repatriated in terms of the original loan approval by the Reserve Bank. The profit on resale may also be repatriated, provided, the relevant securities have been endorsed “non-resident”.
Tax Breaks on Property Development
Real estate developers are given tax breaks of up to 20%, while another 20% tax break on rental is available for renovation projects. Consequently, the commercial property market in South Africa is currently outperforming markets in many Western countries. Even the global economy experiencing difficulties, the commercial property development market in South Africa is booming.
High Growth Potential
It has already been said that the shortage of housing in South Africa and the government’s high priority to alleviate this problem means that the country has a high growth potential. The growth is also due to the development of a strong middle class, which is providing an increase in the demand for homes.
In terms of facts and figures, the housing market in the Western Cape is showing a steady growth of 13.9%, while other metropolitan areas are growing at an annual rate of 15.6%. As we all know, a steadily increasing demand translates into high returns on a long term investment basis.
Courtesy: Agent – The Official Publication of the Estate Agency Affairs Board
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