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New property tax will help state collect dues

Posted On Tuesday, 04 September 2007 02:00 Published by
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Local buyers must hold onto part of sale price to foreign sellers

By Roux van Zyl

A new property tax was passed over the weekend that requires all South Africans who buy local properties from foreign sellers to withhold a portion of the buying price and pay it directly to the taxman.

This law effectively holds property buyers, estate agents and conveyancers responsible to withhold a certain portion of the purchase price - which can be up to 10% of the total cost - and pay it to the SA Revenue Service (SARS) within 14 days from the date on which the seller is paid.

Although non-compliance could land property buyers in hot water with the taxman, estate agents and tax experts do not expect the new law to impact on property sales.

PriceWaterhouseCoopers tax consultant Susan Pedersen-Horn explained that the law is only applicable when the purchase price of a property exceeds R2 million.

Further, it is the responsibility of the estate agent or conveyancer to notify the purchaser, in writing, that the seller is not a resident, she said.

"Where the estate agent or conveyancer fails to notify the purchaser that the seller is a non-resident, the estate agent and conveyancer will be jointly and severally liable for the withholding tax payable.

"In such circumstances, the purchaser will not be liable. There may be complications where the purchaser has failed to withhold an amount from the consideration paid in that it will be necessary to determine who actually is liable for the amount."

The tax is calculated as follows:

  • 5% of the total amount payable where the seller is a natural person;
  • 7.5% where the seller is a company;
  • 10% where the seller is a trust.

"As the withholding tax is not a final tax it will remain necessary for the foreign seller to register as a South African taxpayer. It will still be necessary for the SARS to recover any amount of tax due which exceeds the tax withheld," Pedersen-Horn added.

Andy Collett, managing director of Pam Golding Properties' (PGP) international division, said the company has put processes in place to facilitate the withholding tax through conveyancing attorneys.

"PGP agents have also been briefed regarding this and to advise the purchaser that the seller is foreign."

Collett said residential property sales to foreigners constituted only one percent of the total market "so overall the percentage is very low".

"Foreign buyers tend to prefer coastal areas, like the Western Cape's Winelands and Atlantic Seaboard, the Garden Route, Eastern Cape and KwaZulu-Natal," he said. "They also purchase lifestyle properties such as those on golf and eco-estates, game farms, and secure lock up-and-go properties. And they buy bed and breakfasts and guesthouses and relocate there."

Pedersen-Horn said the tax was introduced on September 1 to counter past problems with recovering taxes from non-resident sellers. It was not unique to SA and it just made it easier for a government to recover taxes from the sale of properties.

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Publisher: I-Net Bridge
Source: I-Net Bridge
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