Land buying blues

Roger Green calls for a review of the Transfer Duty Act, mainly because its provisions may cause delays which could adversely affect economic activity. Writing in the January/February edition of De Rebus ,he analyses the effect that transfer duty as collected by SARS has on transactions where the purchasing entity needs to be formed.

Purchasers using shelf companies for instance need to consider the implications of non-compliance with s35 of the Companies Act 61 of 1973, and in some cases a purchaser purporting to act as a trustee of such a company might be liable for the payment of transfer duty in addition to the shelf company.

Turning to nominee purchases, he notes that as far as property transactions the stipulatio alteri has effectively been negated by SARS. In fact the term "transfer duty" is a misnomer, as it is in reality a sale duty since liability arises once the sale agreement has been signed. The purchaser is obliged to pay transfer duty to SARS prior to the lodgement of transfer documents in the deeds office. The writer also looks at trusts as well as the delays caused by having to register legal entities as VAT vendors if necessary.

In conclusion he suggests the following:
"I submit that SARS should review the Transfer Duty Act in the light of current commercial practice. Transfer duty should be due and payable not on the date of sale but only if and when a transaction is registered in the Deeds Office. Transactions prior to transfer should not be relevant to the calculation of the duty. Purchasers should be entitled to sign agreements in any capacity and to reserve to themselves the right to nominate a third party as transferee. A close examination of a sale agreement by SARS is not necessary. All that is required should be the payment of the prescribed transfer duty and the issue of a receipt. A reversal of the established practice of taxing sales instead of transfers would simplify the conclusion of property transactions.

The implementation of the above suggestion would result in SARS losing transfer duty. However, the small loss of revenue would be outweighed by the commercial convenience and the greater flexibility which would be given to parties to freely negotiate a property transaction. In the last four years, SARS increased its take of transfer duty from R2 billion to R10 billion. A loss of a few million rands would not impact adversely on the fiscus. It would, however, help to remove some of the blues which currently afflict land buyers."

De Rebus website