Section 35 A provides that a person (the purchaser) or his estate agent or the conveyancer must withhold from the amount that is due to a non-resident seller, a so-called advance tax. This is only applicable if the sale price is more than R2 million. If an estate agent or conveyancer knows or should reasonably have known that the seller is a non-resident and fails to comply with s 35A(11), then the ‘failing’ estate agent or conveyancer is jointly and severally liable for the payment of the amount that the purchaser is required to withhold (s 35A(12)).

The question is now: “How do you know if the seller is a non-resident” If the seller speaks Afrikaans and has a South African ID document, does he then not qualify as a resident? He could still have his green South African ID, and if he has been working the last few years in the UK, be deemed to be a non-resident! If a South African citizen has sold to emigrate then he is in fact deemed to be a Non-resident by SARS and withholding tax need to be paid to SARS! If a UK citizen has a holiday flat at Sea Point and now want to immigrate to South Africa and sell his flat to buy a bigger house, then he will be deemed to be an SA tax resident and it is not necessary to withhold!

An estate agent told me about a week ago that his success lies in his relationship with his clients. Now I am just thinking, if his relationship is that good, then it could be held against him by SARS. SARS could then argue that he should then be aware of the fact that his client was, for example, working the last year in the UK and are now emigrating and is for tax purposes deemed to be a non-resident?

A resident is defined in Section 1 of the Act as a natural person who is:

i). ordinarily resident; or

ii). not at any time during the year of assessment ordinarily resident in SA, if such person was physically present in SA:

· for a period or periods exceeding 91 days in aggregate during the relevant year of assessment;

· as well as for a period or periods exceeding 91 days in aggregate during each of the five years of assessment preceding such year of assessment; and

· for a period or periods exceeding 915 in aggregate during such five preceding years of assessment.

In terms of the above, should a client immigrate to South Africa with the intention of remaining in South Africa on a permanent basis, that client will be considered to be ordinarily resident and therefore tax resident in South Africa from the outset?

However, should the client remain in South Africa on a temporary basis, with the intention of returning to Europe, or at least maintaining his ties in Europe and not committing to South Africa, it may be argued that he would not be considered to be a tax resident until such time as he meets the conditions prescribed in terms of the physical presence test.

An individual will be considered to be tax resident if the individual is either ordinarily resident in SA or if the individual is not ordinarily resident then if the individual meets the requirements of the physical presence test (refer paragraph 7(ii)).

In determining an individual’s ordinary status, the South African Revenue Service (“SARS”) makes reference to the various court cases that have interpreted “ordinarily residence”. For example, the concept has been interpreted as the country to which a person would naturally and as a matter of course return from his wanderings. In another case, it was held that a person is ordinarily resident in the place where he has his settled routine of life and him regularly, normally or customary lives. There is also reference to where he is, in fact, settles into or maintains or centralises his ordinary mode of living with its accessories in social relations, interest and conveniences.

Throughout the court cases, there are references to the permanency of ordinary residence i.e. where the person’s permanent place of abode is and that the residence must be settled and certain and not temporary. It must be the place you return to after your wanderings, and where your business and personal interests are closest. The courts have held that the question whether a taxpayer may be regarded as being “ordinarily resident” at a particular place during a particular period is one of degree, and one is entitled to look at the taxpayer’s mode of life beyond the particular period under consideration. The circumstances of the person must be examined as a whole and the personal acts of the individual must receive special attention.

The question whether a person is ordinarily resident in a country is one of fact and each case must be decided on its own facts. It is not possible to lay down hard and fast rules.

The following two requirements need to be present:

• an intention to become ordinarily resident; and
• steps indicative of this invention has been or being carried out.

The invention is a rubbery concept. The taxpayer (seller) may be hazy as to his intention at the time of selling. The taxpayer may have had no clear intention or may have had mixed intentions. Furthermore, the taxpayer may have, in the period between acquisition and resale, undergone a change of intention; he may have originally intended to sell the property at a profit, but later decided to hold them as a long-term investment, or vice-versa. It could, therefore, be very complicated to establish if a seller is an SA tax resident or a non-resident!

Please take note that if the seller is a non-resident and selling for more than R2 million, that he should consider approaching SARS for a Tax Directive for not withholding any tax or a lesser amount! One of the reasons for SARS giving the Directive is that the amount of capital gains tax payable might be less than the withholding amount – it usually is less, and non-resident sellers should be made aware!

You are welcome to contact Fanus Jonck (tax@jonck.net) on +27 (21) 913 4164 for advice on the seller’s tax residency in South Africa or for assessing the seller’s need for a Tax Directive request and with drafting the tax directive application to SARS.