21 February 2006

THE new property transfer duty rates announced by Finance Minister Trevor Manuel last week will come into effect from 1 March.

The South African Revenue Services (SARS) says it is aware that some buyers of fixed property might seek to cancel agreements entered into before 1 March 2006 and enter into new agreements in respect of the same properties to take advantage of the lower transfer duty rates.

But SARS says that if a property transaction was cancelled for the purposes of avoiding or evading transfer duty, there would be no true cancellation of the agreement. Duty would be raised as if the original agreement had not been cancelled.

In his budget speech, Manuel announced that property buyers would pay transfer duty rates of 5 percent when purchasing property that costs more than R500 000 and will pay R25 000 plus 8 percent of the value above R1-million.

The threshold at which transfer duty becomes payable has been increased from R190 000 to R500 000.

Companies, trusts and other juristic persons pay a flat rate of 8 percent reduced from 10 percent.

SARS says the new rates would apply in respect of property acquired on or after 1 March.

The Transfer Duty Act of 1949 defines "date of acquisition" as in the case of the acquisition of property by way of a transaction, the date on which the transaction was entered into.

This is irrespective of whether the transaction was conditional or not or was entered into on behalf of a company already registered or still to be registered.

Provided that where property has been acquired by the exercise of an option to purchase or a right of pre-emption, the date of acquisition shall be the date on which the option or right of pre-emption was exercised.

"An ordinary purchase and sale agreement for fixed property provides that the date of acquisition in this case is the date that the agreement is entered into, ignoring any conditions that may be contained in the agreement.

"In other words, it is the date of the last signature of the parties to the agreement. The form of the agreement whether a standard agreement provided by an estate agent, an agreement drawn up by an attorney, or some other agreement reached by the parties is not relevant," SARS says in a statement.

For example, if an offer to purchase a property at a specified price, subject to the purchaser obtaining finance, was made on 8 February 2006 and was accepted by the seller on 10 February 2006, the date of acquisition would be 10 February 2006.

The fact that finance may only be granted at a later date is not relevant in arriving at the date of acquisition.

 

Source: BuaNews