When a taxpayer relocates abroad or emigrates, then from a tax perspective, it is referred to as ceasing to be a South African tax resident (not to be confused with citizenship). Ceasing to be a South African tax resident may, however, come with a tax cost. One of the most consequential and frequently misunderstood provisions facing South Africans who relocate abroad is the deemed disposal triggered by section 9H of the Income Tax Act. When you cease your South African tax residency, section 9H applies, and the tax consequences can be significant if you are not properly prepared.

This article provides a practical overview of how the “exit tax” works, what assets are caught, what falls outside its reach, and what recent developments taxpayers should be aware of.

How section 9H operates

When a person ceases to be a South African tax resident, section 9H(2) deems that person to have disposed of each of their assets at market value on the date immediately prior to the day they cease residency. The person is then deemed to have reacquired those assets at market value on the actual date of cessation. Put simply, it is as if the taxpayer sells all his/her assets the day before flying abroad, and then as if he/she buys those exact assets back as they take off from the airport.

This creates what is sometimes described as a fictitious sale, but the resulting capital gains tax liability is very real.

The market value for these purposes is determined in the ordinary way, that is, the price that could be obtained between a willing buyer and a willing seller dealing at arm's length in an open market as contemplated in paragraph 31 of the Eighth Schedule. Taxpayers ceasing South African tax residency should ensure that proper valuations are obtained for all relevant assets at the date of cessation, as SARS may challenge values that appear to be understated.

Assets included in the deemed disposal

The scope of section 9H is broad. It catches foreign immovable property, listed and unlisted shares, unit trusts, Krugerrands and gold coins, and yes, even crypto assets, amongst other assets. In short, most worldwide assets held by the departing taxpayer are subject to the deemed disposal, unless specifically excluded.

Assets excluded from the exit tax

Section 9H(4) carves out several categories from the deemed disposal. Immovable property situated in South Africa is excluded, on the basis that it remains within South Africa's capital gains tax net for non-residents under paragraph 2 of the Eighth Schedule. Assets effectively connected to a permanent establishment in the Republic are similarly excluded for the same reason. Certain qualifying equity shares, as provided for in section 8B and 8C, as well as rights to acquire shares under section 8A, fall outside the deemed disposal.

Retirement fund interests, including pension funds and provident funds, are also excluded. In addition, personal use assets such as motor vehicles are disregarded under paragraph 53 of the Eighth Schedule, and cash holdings (being currency rather than an asset for CGT purposes) are not caught.

It is worth noting that although direct interest in immovable property is excluded, indirect interests in South African immovable property will be subject to the deemed disposal on cessation. This applies, for example, where the exiting taxpayer holds shares in property-rich companies. The shares themselves will trigger the “exit tax”.

Computing the liability

The capital gains tax computation follows the standard methodology. The sum of capital gains and losses during the deemed year of assessment is reduced by the annual exclusion, which currently stands at R40 000 for individuals. Any assessed capital loss brought forward from a prior year may be set off against the net gain. The resulting net capital gain is then multiplied by the inclusion rate of 40% for individuals, and the taxable capital gain is included in the person's taxable income for the year.

Taxpayers should not overlook base cost. The expenditure allowable under paragraph 20 of the Eighth Schedule must be properly determined, as this directly affects the size of the gain. Where assets were acquired before 1 October 2001, the valuation date provisions must also be considered.

The “exit tax” must be accounted for in the exiting taxpayer’s final resident return. Practically, for example, should the taxpayer leave South Africa on 01 June 2026, then his/her year of assessment is split into two periods:

• the first ending on the day before cessation (01 March 2026 – 31 May 2026); and
• the second commencing on the day of cessation (01 June 2026 – 28 February 2027).

Practical takeaway

The section 9H exit tax is not optional. It applies regardless of the method used to cease residency, and failing to account for it properly can result in understatement penalties and interest. Before any taxpayer formalises their departure from the South African tax system, a comprehensive asset review and valuation exercise should be undertaken. The cost of proper planning at the outset is invariably less than the cost of remediation after the fact.

We can gladly assist with the cessation process, which includes the “exit tax” consideration, as well as the parallel formal process of informing SARS of your departure.