South Africa’s tax legislation includes specific provisions to address individuals who cease to be tax residents. One of the most significant is the Section 9H Exit Charge, which imposes a deemed capital gains tax (CGT) liability on the disposal of certain assets when an individual exits South African tax residency. Understanding this exit charge is vital for taxpayers planning to emigrate or change residency status to avoid unexpected tax liabilities.
What is Section 9H Exit Charge?
Section 9H of the Income Tax Act treats the cessation of South African tax residency as a disposal of all worldwide assets (except excluded assets), triggering capital gains tax on any accrued gains up to the date of exit. This is called the “exit charge” and aims to tax unrealized capital gains before the individual leaves the South African tax net.
When Does the Exit Charge Apply?
- When an individual ceases to be a South African tax resident.
- Assets are deemed disposed of on the day before ceasing residency.
- The exit charge applies to assets held at that date except for certain exclusions.
Assets Subject to the Exit Charge
The deemed disposal applies broadly to worldwide assets, including:
- Immovable property (real estate) in South Africa and abroad.
- Securities such as shares and bonds.
- Interests in trusts, companies, and close corporations.
- Other capital assets held by the individual.
Exemptions and Exclusions
- Assets situated in South Africa (immovable property) are excluded, as they remain taxable in South Africa.
- Assets sold or disposed of before exit date.
- Some types of retirement benefits and pension interests.
- Assets with market value below a de minimis threshold (check latest SARS guidelines).
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Calculating the Exit Charge
The capital gain or loss is calculated as the difference between the market value of the assets on the day before ceasing residency and their base cost. The resulting gain is then subject to CGT at the applicable inclusion rate for individuals.
Paying the Exit Charge
- The exit charge is payable within the normal tax payment deadlines for the year of ceasing residency.
- Failure to pay may result in penalties and interest.
- Taxpayers must report the deemed disposal in their final tax return as a resident.
Planning Considerations
- Consider selling or restructuring assets before exit to manage CGT exposure.
- Explore available exemptions and reliefs to reduce tax liability.
- Obtain a tax clearance certificate before emigrating.
- Engage tax professionals for tailored advice and compliance support.
Conclusion
The Section 9H Exit Charge ensures South Africa taxes accrued capital gains before individuals cease tax residency. Proper understanding and planning can mitigate unexpected tax burdens when emigrating or changing residency status.
For expert advice on Section 9H, exit tax planning, and compliance, consult experienced South African tax advisors familiar with international and domestic tax rules.
