By Chris Herbst, Chartered Business Accountant in Practice (CBAP) with CIBA, General Tax Practitioner (GTP) with SAIT, Stellenbosch University. Team registered with SAIT, SAIPA and CIBA.
Section 9H of the Income Tax Act is the rule most people meet only once: in the year they stop being South African tax residents. It turns the day before you leave the tax net into a deemed sale of almost everything you own. This guide explains what section 9H does, which assets it covers and leaves out, how the exit year is split, and what to file on eFiling.
What Is the Section 9H Exit Tax?
The section 9H exit tax is a deemed disposal: when an individual ceases to be a South African tax resident, the individual is treated as having sold each asset at market value on the day before residence ends, and as having bought it back at the same value on the day residence ends. SARS sets this out in chapter 6 of its Comprehensive Guide to Capital Gains Tax, under section 9H(2).
Why is it called an exit charge?
SARS itself calls section 9H the exit charge. The rule protects South Africa's right to tax growth in value that built up while you were resident, because a non-resident is generally not taxed in South Africa on gains from assets such as foreign shares or crypto assets. The deemed sale brings that growth to account before you leave the net.
When did section 9H start?
Section 9H was inserted by the Taxation Laws Amendment Act 24 of 2011 and came into effect on 1 April 2012, according to the same SARS guide. Before then, the deemed disposal for an individual leaving the tax net sat in paragraph 12(2)(a) of the Eighth Schedule. Moving it into the main body of the Act brought trading stock and allowance assets within the exit charge as well as capital assets.
Does section 9H mean I pay tax on money I never received?
Yes. No cash changes hands on the deemed sale. The gain is calculated as if you sold at market value, so you need the cash to pay the tax from other funds. Planning for that cash before your departure date is one of the reasons to work the numbers early.
When Do You Cease to Be a South African Tax Resident?
You cease to be resident on a date fixed by the way you were resident in the first place. South Africa has two tests for individuals, the ordinarily resident test and the physical presence test, and each has its own cessation rule. A tax treaty can also make you resident only in another country.
When does an ordinarily resident person cease to be resident?
Under SARS Interpretation Note 3, a person who ceases to be ordinarily resident is not resident from the day that person ceased to be ordinarily resident. The note adds that, generally, a person who emigrates to another country ceases to be resident from the date of emigration. Whether you have ceased is a question of fact, weighed on factors such as your intention, your most fixed and settled place of residence, your habitual abode, where your family and business interests are, where your belongings are, and the purpose and frequency of visits back.
When does the physical presence test stop applying?
Under SARS Interpretation Note 4, a person who is resident only because of the physical presence test ceases to be resident after being physically outside South Africa for a continuous period of at least 330 full days. Residence then ends from the day the person left South Africa, not from day 330. The note also explains that the 330 days always run over two years of assessment.
Can a tax treaty end your South African residence?
Yes. Interpretation Note 4 states that a person who is exclusively a resident of another country for the purposes of a tax treaty is not a resident of the Republic under the Act. SARS lists a double tax agreement as one of the bases on which you declare cessation on its cease to be an SA tax resident page, with its own supporting documents.
Is emigrating for exchange control the same as ceasing tax residence?
No. Interpretation Note 3 states that ordinary residence must not be confused with domicile, nationality, citizenship or the concept of emigrating for exchange control purposes. Tax residence is decided by the tests above. Keeping a South African passport does not keep you resident, and holding a foreign passport does not end residence on its own.
Which Assets Does Section 9H Cover?
Section 9H covers each of your assets, as "asset" is defined in paragraph 1 of the Eighth Schedule, wherever in the world it is held. SARS's guide states that the deemed disposal applies to capital assets, trading stock and allowance assets, and that the market value is the price a willing buyer and willing seller would agree at arm's length in an open market.
Which assets are excluded from the deemed disposal?
Section 9H(4) excludes five kinds of asset, listed in the SARS CGT guide:
- immovable property situated in South Africa that you hold
- an asset that, after you cease to be resident, is attributable to your permanent establishment in South Africa
- a qualifying equity share under section 8B granted less than five years before you cease to be resident
- an equity instrument under section 8C that has not yet vested when you cease to be resident
- a right to acquire a marketable security under section 8A
Why is South African property left out?
South African immovable property stays in the South African tax net after you leave. Under paragraph 2(1)(b) of the Eighth Schedule a non-resident is taxed on a capital gain from immovable property in South Africa, so there is no need to tax it at exit. You account for the gain when you eventually sell it.
Are shares in a property company excluded too?
No. The SARS guide states that the exclusion for immovable property does not extend to indirect interests under paragraph 2(2), such as shares in a company whose value is mostly South African property. Those shares are deemed disposed of at exit, and they stay in the South African net afterwards with a base cost stepped up to the exit market value.
- Home or other property in SA: Deemed sold under s 9H?: No, s 9H(4); Still in SA net after exit?: Yes, para 2(1)(b)
- Shares in an SA property company (para 2(2)): Deemed sold under s 9H?: Yes; Still in SA net after exit?: Yes, at stepped-up cost
- Listed shares and unit trusts: Deemed sold under s 9H?: Yes; Still in SA net after exit?: Not under para 2
- Crypto assets: Deemed sold under s 9H?: Yes; Still in SA net after exit?: Not under para 2
- Asset of an SA permanent establishment: Deemed sold under s 9H?: No, s 9H(4); Still in SA net after exit?: Yes
How Does Section 9H Work With a Worked Example?
SARS's own example in the CGT guide shows the calculation. Dorothy, a resident, emigrated to Australia on 30 June 2019. On 29 June 2019 she held a primary residence, JSE-listed shares with a market value of R500 000 and a base cost of R100 000, and a member's interest in a close corporation that owned a holiday home, with a market value of R1,2 million and a base cost of R300 000.
What did Dorothy include in her return?
Dorothy was deemed to have disposed of all her assets at market value on 29 June 2019 except the primary residence, which section 9H(4)(a) excludes. She included a capital gain of R400 000 on the shares and R900 000 on the member's interest in her return for the period from 1 March 2019 to 28 June 2019.
What happened to her base cost?
The house kept its original base cost of R1 million, because it was never deemed disposed of. The member's interest took a base cost of R1,2 million, the market value on exit, because of the deemed reacquisition under section 9H(2)(a)(ii). Both remain taxable in South Africa when she eventually sells them.
How Is the Year of Assessment Split When You Leave?
Section 9H(2) ends your year of assessment on the day before you cease to be resident and starts a new one on the day you cease. The SARS CGT guide sets out both rules. In practice the tax year in which you leave runs in two parts.
What goes in the first period?
The first period runs from 1 March to the day before your cessation date. You are resident for the whole of it, so it carries your worldwide income for those months and every capital gain or loss from the section 9H deemed disposal, as Dorothy's example shows.
What goes in the second period?
The second period runs from your cessation date to the end of February. You are a non-resident in it, so only South African source income and gains on assets still in the South African net, such as South African property, are taxed. Interest, rent or a South African salary in that period still need to be declared.
Does the eFiling return pick up the split?
SARS states on its cease to be resident page that the cessation date you enter on the RAV01 is the date SARS uses as the day you become a non-resident. That date is what the ITR12 for the exit year works from, which is why it must be declared and approved before the return is filed.
How Does Section 9H Apply to Crypto Assets?
Crypto assets you hold on the day before you cease to be resident are deemed sold at market value on that day, whether they sit on a South African exchange, a foreign exchange or in self-custody. SARS confirms on its Crypto Assets and Tax page that normal income tax rules apply to crypto assets and that the onus is on taxpayers to declare crypto gains and losses.
Is the exit gain on crypto capital or revenue?
The character follows the same tests that apply to any crypto disposal: your intention when you acquired the asset, how long you held it, how often you traded, and the other facts SARS weighs. Crypto held as trading stock gives an amount on revenue account at exit, and crypto held as a capital asset gives a capital gain or loss. The character is decided on your own facts, and the deemed disposal does not change it.
What records do you need for crypto at exit?
You need the base cost of every unit you hold, which means the full history of buys, swaps, transfers and rewards since you started, and a market value for each asset on the day before your cessation date. Our guides on calculating crypto capital gains and declaring crypto on your ITR12 show how the base cost is built.
This guide is for South African tax residents and people leaving the South African tax net. Readers who live outside South Africa and need crypto tax reports for another country are served by CountDeFi (countdefi.com).
What About Retirement Annuities and Retirement Funds?
SARS's CGT guide states that there is a disposal of a retirement annuity interest when you cease to be resident, but that it should not give rise to a capital gain or loss, because amounts from the fund are taxed when paid out as a lump sum or annuity and the expenditure is reduced under paragraph 20(3)(a).
When can a non-resident withdraw a retirement annuity?
SARS's tax directive guide for cease to be resident and expiry of visas states that a member who has ceased to be a resident for an uninterrupted period of three years or longer can withdraw from a retirement annuity fund or preservation fund before retirement, and that the guide applies to pension and provident funds from 1 September 2024. The fund administrator applies for a tax directive before paying.
Why does notifying SARS matter for the directive?
The directive is issued against the cessation date SARS holds. If you never declared cessation through the RAV01, SARS has no cessation date to test the three years against, and the directive cannot follow.
What Are the Practical Steps on eFiling?
The SARS process runs through the RAV01, a supporting documents case and your ITR12. SARS sets out the first steps on its cease to be an SA tax resident page.
Step 1: Fix your cessation date
Work out the date under the test that made you resident: the date you ceased to be ordinarily resident, the day you left South Africa if you meet the 330-day rule, or the date a tax treaty made you resident elsewhere. Collect passport pages or a travel record that support the date.
Step 2: Declare the date on the RAV01
Log in to eFiling, open the Registration, Amendments and Verification form (RAV01) and enter the cessation date under Income Tax Liability Details. SARS states that a case is then created and you receive a letter asking for supporting documents.
Step 3: Submit the declaration and documents
Complete the SARS declaration for ceasing to be a tax resident and submit it with the supporting documents through eFiling or the SARS Online Query System (SOQS). SARS lists a signed declaration, a letter of motivation, and passport or travel pages with entry and exit stamps, plus documents specific to the basis on which you ceased.
Step 4: Calculate the section 9H deemed disposal
List every asset held on the day before the cessation date, separate the section 9H(4) exclusions, and calculate each gain or loss as market value less base cost. Our capital gains tax guide explains base cost and the annual exclusion.
Step 5: File the ITR12 for the exit year
File the ITR12 with the capital gains from the deemed disposal in the period ending the day before cessation, and your South African source income for the period after it. If you have offshore investments, our guide to offshore investments covers the foreign income sections.
Step 6: Apply for an Approval for International Transfers
If you will move funds abroad, SARS's Approval for International Transfers supporting documents page states that an individual who ceases residence submits relevant proof of ceasing to be resident for tax purposes and a CGT calculation for the deemed disposal. Crypto traders select Crypto Assets as the investment type, and SARS declines applications that use the wrong type.
What Are the Common Mistakes With Section 9H?
Most problems come from treating departure as a travel event rather than a tax event. These are the errors we see most often.
Leaving without telling SARS
Without a declared cessation date, SARS keeps assessing you as a resident on worldwide income, and a later retirement fund directive cannot be issued. Declare the date on the RAV01 and answer the documents letter.
Leaving the deemed disposal out of the return
The exit year return must carry the section 9H gains even though nothing was sold. SARS also asks for the CGT calculation for the deemed disposal when you apply for an Approval for International Transfers, so a missing calculation surfaces there.
Valuing assets on the wrong date
The market value is taken on the date immediately before the day you cease to be resident, not on the cessation date and not at year end. For volatile assets such as crypto, the difference of one day can be material.
Treating South African property as sold
Your South African home or rental property is excluded by section 9H(4). Including it in the exit calculation overstates the gain, and the property remains taxable when you sell it later.
Forgetting assets held abroad
Section 9H covers worldwide assets. Foreign brokerage accounts, foreign exchange balances and crypto on foreign platforms all form part of the deemed disposal.
Picking the wrong cessation date
A date that does not match the test that made you resident, or that your travel record does not support, invites a SARS query. The date drives the split of the year, the deemed disposal and every later directive. If SARS asks for more documents, our guide to SARS verification documents explains how to respond.
Do You Need Help With Section 9H?
Ceasing residence touches your RAV01, the exit year ITR12, the deemed disposal calculation and often an Approval for International Transfers. We prepare the cessation declaration and the section 9H calculation and file the return for individuals across South Africa, including the crypto schedule through our crypto tax service. See our personal tax pricing, read how to appoint a tax practitioner for your ITR12, browse our personal tax guides, or contact us to start.
