The High Cost of Goodbye – Exit Tax

Ever broken up with a lover, thinking you were parting on good terms, only to find yourself picking up the pieces… and the bill?

Leaving South Africa as a tax resident can feel eerily similar. You make the move with the best intentions (new opportunities, new horizons, maybe even a one-way ticket). But when you think you're free, SARS arrives with one final parting gift: exit tax. And no, it's not wrapped in a bow.

The High Cost of Goodbye – Exit Tax

When you break tax residency with South Africa, there is a relevant clause in the Income Tax Act 58 of 1962 (the Act) to plan for. Under Section 9H(2) of the Income Tax Act, individuals who cease to be South African tax residents are treated as having disposed of most of their worldwide assets at market value, immediately before ceasing residency.

This farewell gesture from SARS doesn't feel sentimental. Why? When you sell your assets, capital gains tax (CGT) applies. Even if you haven't sold anything or received a cent, it makes me think of Top Gun 2 – “your ego is writing cheques that your body can’t cash” – this is not to say that you are egotistical when leaving the country…oh no, this feels like my last break up already… stop talking.

Usually, if you sell an asset for a gain, you at least have the cash to pay the CGT that follows. But being deemed to have sold everything at once? That’s a different story. You’re facing a real tax bill, without the real liquidity to match it.

Exit Tax is, in short, an informal term for the deemed disposal rules under Section 9H of the Act.

There are a few exceptions to this deeming rule. The most common for ordinary taxpayers is immovable property situated in South Africa, like the home you used to live in but haven’t yet sold before emigrating. All exclusions are listed under section 9H(4).

So, if you're planning your big breakup with South Africa, make sure you plan for more than just a farewell braai. It might cost you more than a cup of coffee, and unfortunately, SARS doesn’t accept dishwashing as a form of payment.

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Werner Pauw

Director