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South Africa: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Since March 2001, the Republic of South Africa has taxed residents on their worldwide income. Married couples are assessed and charged as separate individuals. If the property is considered part of the conjugal estate, income is divided between husband and wife in equal portions.

INCOME TAX

Income is aggregated from all sources and taxed at progressive rates. Taxable income is computed as gross income less deductions and allowances. The following tax rates apply for the tax year March 2009 – February 2010.

Residents are entitled to allowable deductions and rebates. For individuals below 65 years of age, the tax threshold is ZAR54,200 (US$6,751) while the tax rebate is ZAR9,756 (US$1,215). Tax threshold and tax rebates for individuals over 65 years of age are set at ZAR84,200 (US$10,487) and ZAR15,156 (US$1,888), respectively.

Residents are also entitled to the following deductions:

• Medical and dental expenses, including medical aid contributions, of the taxpayer, the taxpayer’s spouse, children and stepchildren subject to the following limitations
• Individuals over 65 years of age and handicapped individuals may deduct the expenditure in full
• Contributions to a medical scheme up to ZAR530 (US$66) per month for each of the first two beneficiaries and ZAR320 (US$40) for each additional beneficiary (reduced by any amount contributed by the taxpayer’s employer to the scheme)
• In other cases, the taxpayer may only deduct part of the expenditure which exceeds 7.5% of the taxpayer’s income before the deduction
• Donations to approved institutions; limited to 10% of the taxable income of the donor before the deduction of medical expenses and donations

RENTAL INCOME
Rental income is taxed at progressive rates. Interest payments, insurance premiums, agent’s commission, and maintenance costs are deducted from the rental income.

CAPITAL GAINS
To compute the gain, acquisition costs, transfer costs, and property improvement costs are deducted from the selling price. A further allowable annual deduction of ZAR15,000 (US$1,868) is subtracted. The taxable gain is 25% of the resulting amount.

The first ZAR1,500,000 (US$186,822) gains realized from the sale of a primary residence with an area smaller than two hectares is not taxable for CGT. This exemption may only be claimed by a permanent resident for one property per year of assessment.

The disposal of property is assumed on death or emigration, and triggers the payment of CGT.

Subject to certain limitations, capital gains realized on disposal of assets used exclusively for business purposes are exempt from taxation provided that the value of all assets used n the business does not exceed ZAR5,000,000 (US$622,740).

PROPERTY TAX

Property Tax

Property tax is imposed by the local government at approximately 0.07% - 0.4% of the market value of the property, depending on its size and location.

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