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Capital Gains Tax and Non Resident Sellers

This post reflects my basic research on the issue.

Please note This is NOT tax or financial advice please consult you advisors if necessary.

Extracts from the SARS and Private Property websites which i believe are pertinent. 

Foreigners are liable for the payment of CGT on the disposal of any immovable property. 

There is a 5% withholding tax levied unless you obtain a directive from SARS before transfer. The directive will allow a lesser amount to be deducted depending on the details of the sale – so it would make sense to obtain advice regarding the directive before transfer.

Where properties are owned by individuals or special trusts, 33 percent of the capital gain must be included in the taxable income

A capital gain is calculated by deducting the cost of a property from the proceeds of the disposal of the property.  The following are included in the cost:

  • The cost of acquiring a property, including the purchase price, transfer cost, transfer duty, VAT and professional fees.
  • The costs of improvements, alterations, renovations and so forth. This will only be accepted if you have receipts or invoices.
  • The cost of disposing of the property, including the agent’s commission, advertising costs, valuation costs (including valuing the property for CGT purposes) and professional fees.

Expenditure on repairs, maintenance, insurance and rates and taxes is not included in base costs.

It is essential to keep accurate records of these costs. If records are not kept, no deduction will be allowed from the proceeds to determine the capital gain. Records must be kept for four years from the date of submission of the income tax return for the year in which the capital gain or loss is reflected.

For more information see also
SARS website
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Fixtures and fitting – what goes and what stays? 

Information courtesy of the RE/MAX.co.za blog

Often when disputes arise between buyers and sellers, it is regarding an item of the home that was seen as a fixture, but was removed during the home sale process.

According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, it is for this reason that sale agreement between the two parties, otherwise referred to as the offer to purchase, needs to be clear regarding all aspects relating to the sale of the home. “It is not uncommon for a homeowner to have installed certain items in their home that they intend to take with them when they move. Even if the item is regarded as fixture, a seller is within their rights to take the item, provided the buyer is aware of the fact and is in agreement,” says Goslett. “Alternatively, if the agreement of sale excludes any specific item, the seller is entitled to remove it, which again points to the importance of ensuring that the sale agreement that covers all aspects clearly.”

He notes that disagreements occur when the sale agreement is vague and does not list the specific fixtures that will remain in the property. According to Goslett, the seller should prepare a list itemising exactly what is to be sold with the house prior to listing the property with an estate agent. “The list should be incorporated into the mandate to sell so that the agent can point out to potential buyers any items that will be removed by the seller at a later stage,” he says.

When it comes to fixtures and fittings, the general rule is that when a buyer purchases a property, they receive the land, the permanent physical improvements such as any buildings erected on the land, along with all items that are permanently attached to the improvements or buildings that are erected on the land. This includes all upgrades, fixtures and fittings of a permanent nature. This is why it is best to define what is regarded as permanent nature. According to Goslett, there are three aspects to consider when defining whether a fixture or fitting is of permanent nature:

    • The first aspect to establish is the intended nature and purpose of the item when it was attached. Is the item attached to the land or a structure erected on the land and does this item intend to serve the land on a permanent nature?
    • How was the item attached? If the item is attached to the degree that removing it would cause damage to the structure or land that it is attached to, then the item should remained fixed and be considered permanent.
    • The owner’s intention when attaching the item should be taken into account. If the intention of the owner was to permanently attach the item, then that should be given consideration.

According to Goslett, if an item is bolted, cemented, sown or planted and has taken root it is generally regarded as permanent. He points out that a contentious issue can arise when it comes to structures such as Wendy houses, pergolas or other similar structures. Goslett says that the seller should provide the buyer with plans if the structures are permanent and will remain on the property.

To avoid any confusion or disputes at a later stage, Goslett says that a basic clause regarding the fixtures and fittings should be included in the agreement of sale.

The clause should be similar to the following: The property is sold inclusive of all existing fixtures and fittings of a permanent nature, which the seller warrants are his/her exclusive property, fully paid for and in working condition, including but not limited to: the existing garden, trees, shrubs, plants, curtain rails, rods, pelmets, fitted carpets, the light fittings, stove and/or oven, hanging mirrors, towel racks, shelves, as well as special tap fittings, removable kitchen units, tennis court net, fireplace grate/blower, fitted kitchen storage units, awnings, post box, burglar alarm system, doorbell/knocker, the television aerial and accessories (if applicable), pool filter, pump and all cleaning equipment including automatic pool cleaner (whether fixed or movable, if applicable), swimming pool equipment, inner and outer door keys. “The more specific the clause is the better. This is to ensure that nothing is left open to interpretation by either party.

Taking the time and effort to include all fixtures when the sale agreement is drafted will help to avoid any frustration that could arise later on,” says Goslett, who notes that while there might be a verbal agreement between the two parties, if the agreement has not been reduced to writing it is very hard to prove anything at a later stage should the need arise. “Before placing their home on the market, a seller needs to carefully consider exactly what they are intending to include in the sale and perhaps remove items before the home is opened to buyers,” says Goslett, “However, if it is not feasible to remove the items beforehand it is imperative that there is an open channel of communication and the seller’s intentions are made clear to buyers from the outset. This will ensure that conflict is avoided by both parties,” he concludes.
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Plumbing, Electrical, Beetle and Gas Inspections

The seller is generally responsible fHome inspectionor providing compliance certificates in respect of Plumbing, Electrical, Beetle, Gas and Electric fencing. The obligation to provide these certificates can be waived or transferred to the seller in the sale agreement.

From time to time problems arise because buyers / sellers do not understand the scope of work carried out in preparing certificates.  The remainder of this post sets out the scope of work  for each of these certificates.

ELECTRICAL

What is inspected – The test is a visual, physical inspection and test of circuits, earthing and safety.

What do they look for – There must be electricity at the premises when the tests are performed. All rooms, outbuildings, garages and distribution boards must be accessible.  The test performed Electrical inspection – whats covered.  Appliances such as stoves, ovens, geysers, pool pumps, gate motors, door openers, globes are NOT tested. NOTE  All flex wire extensions, extension leads are deemed to be FIXED and will have to be rewired correctly. If possible remove any of these extensions before an inspection and do not replace them before transfer.

Who performs an electrical inspection – Electrical contractors registered with the Electrical Contractors Board (ECB) or the Department of Labour (DOL has taken over responsibility for this function from the ECB). Certificates supplied by unregistered contractors are invalid. Call 021 441 8172 to verify the registration of your contractor.

How long is an electrical compliance certificate valid – Certificates are valid for 2 years. If there have been any changes to the electrical installation (renovations or new light fittings installed) a new certificate is required or a certificate in respect of the changes can me attached to the initial certificate.

What happens if the property does not comply with the requirements of the regulations – The inspection company will provide a quote for the remedial work and once carried out they will issue a compliance certificate. If the home owner does not accept the quotation they remain responsible for the inspection fee – a certificate will not be issued.

It can happen that after a sale the buyer is concerned that the property is NOT compliant even though the seller has provided a certificate. In this event (provided the certificate was issued by a registered electrical contractor) the buyer should raise the issue with the the contractor.  The Electrical Approved Inspection Authority will provide resources to adjudicate disputes.

PLUMBING

What is inspected – Hot water Cylinder, water meter, storm water and pipework. The inspection is a visual inspection only.

Maintenance issues do not form part of the inspection – the inspection excludes – leaking waste pipes, cracked sanitary ware, missing taps, sewage and storm water blockages, leaking terminal fittings when open, pressure or flow issues.

What do they look for –

Hot water cylinder must comply with SANS 10252 and 10254 if installed after 2006. All must be done in metallic pipe except for temperature and pressure valves.

Water meter must stop registering when all terminal fittings are closed and must begin registering when one terminal valve is opened.

Ensure that no storm water runs into sewage lines – no down pipes into sewers, no paving sloping towards storm water

No lose pipework or terminal fittings – no lose pipe in roof space, no lose sanitary ware or garden taps and no cross connections between clean water and dirty water. i.e. no well points or boreholes corrected directly to council water.

Who performs a plumbing inspection – Registered plumbers, the certificate is only valid on the day of inspection.

What happens if the property does not comply with the requirements of the regulations – if the water meter is faulty the owner must report the fault to the city council and receive a reference number for the reported fault. If this is the only fault the plumbing certificate can be issued as the council has been advised. For all other faults the inspection company will provide a quote for the remedial work and once carried out they will issue a compliance certificate. If the home owner does not accept the quotation they remain responsible for the inspection fee – a certificate will not be issued.

BEETLE

What is inspected – All accessible wooden portions of the building are inspected. The inspection can only include  wood that is visible (wooden flooring under wall to wall carpets is NOT inspected).

What do they look for – Your deed of sale will provide clarity. The deed of sale should specify which types of beetle are included (it might only include Oxypleuris Nodien and Hylotrupes Bajulus) and can exclude wendy houses, picket fencing and other timber not forming part of the house. It is a good idea to make sure that the inspector has a copy of the relevant clause in the deed of sale so that the report covers exactly what is required.

Who performs a beetle inspection – Inspectors registered with the Department of Agriculture in terms of Act 36 of 1947.

What happens if the property does not comply with the requirements of the deed of sale – The inspection company will provide a quote for the remedial work and once carried out they will issue a compliance certificate. If the home owner does not accept the quotation they remain responsible for the inspection fee – a certificate will not be issued.

GAS

What is inspected – All Built in gas fires, braais, stoves, hot water systems and similar appliances. Any person selling a property with gas appliances installed must have a certificate of conformity.

What do they look for – Inspectors ensure that the gas installation complies with the specified regulations. The requirements vary for installations depending on whether the gas bottle is inside or outside. There are also regulations for the manner in which gas is piped behind cupboards and through walls. See Gas installations – drawings

Who performs a Gas inspection – Inspectors acting in terms of Regulation 17(3) of the pressure equipment regulations.

What happens if the property does not comply with the requirements of the regulation– The inspection company will provide a quote for the remedial work and once carried out they will issue a compliance certificate. If the home owner does not accept the quotation they remain responsible for the inspection fee – a certificate will not be issued.

ELECTRIC FENCE

The user of an electric fence installed after 1 October 2012 must have an electric fence compliance certificate which is issued by an approved electric fence installer. Transfer of any property after 1 October 2012 will require an electric fence certificate (not sectional title properties). The certificate is transferable provided no alterations have been made to the fence since the last certificate was issues.

COC Checklist

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What happens if a party to a sale passes away before transfer?

Sellers and Purchasers are unlikely to ever encounter this situation but it is handy to know where you stand in the event that you do.

If the Seller passes away after the offer has been accepted the sale agreement remains valid and should be upheld by the executor of the sellers estate.

If the Purchaser passes away, the executor of the estate has the option or choice to proceed with the purchase or not.

In any event the transfer is likely to be delayed somewhat while the executor is appointed and paperwork is set in order.

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Ownership of exclusive use areas – sectional title

exclusiveWhen purchasing or selling a sectional title property there are often Exclusive Use rights attached or claimed to be part of the sale.

Owners sometimes believe they have an Exclusive Right to use a piece of garden or a parking bay only to find that the “right” does not exist or is inadequately recorded. This can have a fundamental impact on the value of a section.  It is therefore important to ensure that one understands exactly how Exclusive Use rights are secured.

Exclusive Use of a particular area in a sectional title scheme can be recorded or defined in a number of ways, they are listed below.

Please consult a legal adviser with sectional title experience if necessary.

1. Notarial Deed – Exclusive Use rights recorded / transferred by notarial deed can’t be unilaterally removed. They can be sold, generally together with the sale of a sectional title unit or in certain instances they can be sold separately to the owner of another section.

2. Rule 27A – Exclusive use rights recorded in terms of 27A can be less secure than those on a notarial deed. Depending on the wording of the rule, changes may require unanimous consent of all the unit holders before a right can be altered. However if the wording does not require it then the voting rules of the Body Corporate (BC) would apply. An exclusive use right could under these circumstances be removed by a simple majority vote of members in a properly constituted meeting.

3. Right allocated by the Body Corporate – These are rights to use a part of the common property allocated by the BC or the trustees. These can be changed at anytime (provided the due process as defined in the BC rules is followed) normally by a decision of the trustees. Rights allocated in this manner obviously have less value than those allocated by Notarial Deed or a well written Rule 27A.

When purchasing a sectional title unit make sure you understand how the Exclusive Use rights are recorded. Avoid the unhappiness and stress related to finding out that your rights are not as secure as you had thought and the value of your investment is eroded.

Your sale agreement should make specific mention of the Exclusive Use rights transferred by notarial deed. Other Exclusive Use rights need not be specifically mentioned as long as the agreement includes ANY other Exclusive Use rights attached to the section.

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Levy Clearance Certificate’s

FetchImageA body corporate’s power to prevent the transfer of a unit if the seller owes money to the body corporate, is contained in section Section 15B(3)(a)(i)(aa) of the Sectional Titles Act, 95 of 1986 (the Act).

Levy clearance is an assurance from the trustees, or managing agent, that the owner does not owe any money.  This covers “all monies” not just “contributions”. This means that the body corporate may withhold the certificate until all costs or potential costs have been paid or an arrangement for payment has been made that is acceptable to the body corporate.

Section 15B(3)(a)(ii) also refers to a clearance certificate but it applies to developers who hold rights to extend the scheme in terms of section 25. Section 37(1)(bA) says the body corporate must charge the developer for any expenses it has in respect of the area subject to the future development rights.