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February 8, 2021
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Emigrating while retaining your property?

The exodus of South Africans to foreign jurisdictions has been well publicised, and due to this, much has been written about the so-called “exit tax” that applies when one ceases to be a tax resident in South Africa, as well as matters relating to foreign employment income earned. However, what is often overlooked is what happens when you emigrate but retain your home in South Africa.

The general principle is that when you cease to be a South African tax resident, your home (constituting immovable property in South Africa) will not be subject to the “exit charge”, since that immovable property always remains a part of the South African tax net. This means that should you initially keep your home in South Africa and only sell it a few years down the line, you are only likely to pick up any capital gains tax consequences once you do sell the home.

The question arises, however: What is the interaction is between you having used your home as a primary residence whilst in South Africa and you not having lived there after your emigration? It is important to note that the way in which you used your residence whilst not actually living there while aboard is irrelevant for the consideration below.

In terms of the Income Tax Act, the first R2 million of a capital gain made on the disposal of a “primary residence” is excluded for purposes of calculating your tax liability. However, since you were not resident in your home for the entire time during which you owned the property, it will not constitute as being your “primary residence” for the entire time. An apportionment must thus be made for the time during which you lived in that residence, and the time you used it for other purposes.

Taxpayers are often incorrectly advised that for purposes of the apportionment mentioned above it is the primary residence exclusion of R2 million that must be apportioned on a time basis to determine the capital gains tax exposure. However, paragraph 47 of the Eighth Schedule of the Income Tax Act is clear in that it is the capital gain that must be apportioned on a time basis for the period you were resident and the period in which you were not resident. The gain made in respect of the period during which you did not reside in the property as your primary residence is fully subject to capital gains tax, while the R2 million primary residence exclusion can only be applied to that portion of the gain during which you indeed resided in the property, as your primary residence.

Persons who currently reside aboard or intend to emigrate while retaining their property, which they used as a primary residence at some stage, are therefore encouraged to obtain professional assistance when doing the apportionment calculations to ensure that they are not prejudiced in any way (either through the overpayment or underpayment of tax in respect of the disposal of that property).

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE) 

Michael Phillips

CA(SA) Registered Auditor – Director

Mike is the director of RDL Chartered Accountants Inc. and as a Registered Auditor has the knowledge and ability to comply with the latest auditing standards and financial reporting requirements and he completes all the statutory audits required by our clients.

Chris Johnson

Trainee Accountant

Chris, studying for his Chartered Certified Accountant [ACCA] qualification joined the practice in February 2016 and maintains a portfolio of clients attending to the write up of client general ledgers to trial balance, completion and submission of client statutory returns and management accounts. Chris holds a Diploma in Accounting and Business from ACCA and is a registered Business Accountant with SAIBA.

Hendrietta Soafo

Statutory Clerk

Hendrietta has been with LDC since 2004 and oversees the entire statutory function of LDC. She communicates regularly with the Regulator – CIPC and ensures that all of our clients are in good standing in respect of annual returns, company registers, share registers and directors and officers registers. She also attends to all new company incorporations, director appointments, share transfers and minutes of meetings.

Lisa Sampson

Senior Bookkeeper

Lisa, a Certified Bookkeeper joined LDC in 2008 and oversees the bookkeeping role of all LDC clients. She has extensive Pastel Accounting and Payroll experience and prepares all client files for year end annual financial statements. She also ensures all statutory returns are completed and submitted to the various governmental departments.

Teresa Verdonese

Tax Manager

Teresa has a B Com Accounting and an LLB (University of Johannesburg), and is in process of completing her Diploma in Advanced Taxation (UNISA). She specialises in Corporate & Individual taxation & manages the tax base from preparation to assessment. Teresa is a Registered General Tax Practitioner with the South Africa Institute of Tax Practitioners (SAIT).

Paddy Crichton

CA(SA) – Director – Accounting

Paddy completed his CTA at the University of the Witwatersrand and articles at Aiken and Carter (now KPMG) where he qualified as a chartered accountant. Prior to joining LDC in June 2017 he was employed as Financial Manager and Company Secretary in manufacturing and wholesale distribution companies, most recently as Financial Director of a leading international kitchen appliance distributor. Paddy oversees the full accounting function of LDC

Bob Lees

FCG(CS) FCIBM Professional Accountant (SA) – Managing Director

Bob started the practice in September 1991 and is the Chairman and Managing Director in overall charge of LDC Accounting and Tax Consultants Inc. He has three professional business qualifications and holds practicing certificates issued by Chartered Secretaries Southern Africa and South African Institute of Professional Accountants and for many years served on Committees and the Board of Chartered Secretaries Southern Africa and the International Council of the Institute from 2006 and as a vice president from 2009 to 2011.