WHAT IS SECTION 35A OF THE INCOME TAX ACT

Section 35A is a new section added to the Income Tax Act (effective from 1 September 2008) the purpose of which is to prevent non-resident Sellers of immovable property from disposing of immovable property without paying capital gains tax due to SARS.

Section 35A states that a Purchaser of property from a non resident Seller must withhold funds from the amount due to the non resident Seller and pay the funds to SARS.  These funds are used by SARS to pay the Sellers tax due to SARS.

WHAT AMOUNT OF FUNDS MUST THE PURCHASER WITHOLD

The Purchaser must withhold funds as follows:

If the non resident Seller is a natural person:                                 5 %

If the non resident Seller is a Company:                                           7.5 %

If the non resident Seller is a Trust:                                                    10 %

The amount withheld must be paid over to SARS within a prescribed time or the Purchaser will be liable to SARS for interest and penalties.

CAN THE SELLER AVOID THIS WITHOLDING OF FUNDS

Yes.  The Seller can apply to SARS for a directive to reduce the amount or a directive that no amount be paid.

WHAT ARE THE LIMITATIONS OF SECTION 35A

Section 35A does not apply if the amount payable by the Purchaser to the Seller in respect of the acquisition does not exceed an aggregate of R2 million. i.e. the Section does not apply if the purchase price is less than R2 million.

WHAT HAPPENS IF THE PURCHASER DOES NOT WITHOLD FUNDS

If a Purchaser knows or reasonably should have known that the Seller is not a resident and fails to withhold any amount as required in terms of the Act, that Purchaser will be personally liable for the payment of the amount which he failed to withhold.

Any estate agent and any conveyancer who is entitled to any remuneration in respect of services rendered in connection with the disposal of the immovable property or the registration of transfer, as the case may be, must each inform the Purchaser in writing of the fact that the Seller is not a resident.

If an estate agent or conveyancer knows or should reasonably have known that the Seller is not a resident and fails to comply with the above, that estate agent or conveyancer will be jointly and severally liable for the payment of the amount which the Purchaser is required to withhold to pay to SARS in terms of this section, but the amount is limited to the amount of remuneration payable to such person.

CONCLUSION

The explanation given in this article has been simplified. Section 35A of the Income Tax Act has intricacies and one should consult an Attorney for further information.

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