Do not look for loopholes in new transfer duty rules
| PROPERTY buyers have been warned that postponing existing
sales agreements to take advantage of the lower transfer duties from March
1 may be tantamount to fraud.
Few new sales are expected to be recorded in the South African residential property market up until March 1 because potential buyers would rather wait to take advantage of the cost savings introduced by the treasury.
Buyers who already have signed sales agreements but have not yet taken transfer of their properties are also expected to try cancel sales agreement with a view to re-entering them after March 1, when the increase in the transfer duty exemption threshold and reductions in transfer duty become effective.
But lawyers say property buyers may find themselves in trouble with the South African Revenue Service (SARS) if they attempt to cancel current sales agreements.
SARS issued a statement on Monday saying that where a property transaction was cancelled for the purposes of avoiding or evading transfer duty, duty would be raised as if the original deal had not been cancelled.
From March 1 there will be no duty payable on properties under R500000. A flat rate of 5% of purchase price will apply to residential property between R500000 and R1m and 8% thereafter.
The flat 10% rate for firms and trusts will be reduced to 8%. Previously the transfer duty exemption threshold was properties was R190000, while in terms of the upper threshold buyers paid a R7000 flat fee for a R330000 house.
On residential property above R330000, R7000 was paid plus 8% on value above R330000.
Steven Delit of RE/MAX Living says a R1m property will be taxed at R25000 while a R2m property will be taxed at R105000, which includes R25000 for the first million plus 8% of the second million. For properties more than R1m, buyers will pay R35600 less than before.
For a property of R1m, buyers will pay tax of R25000 instead of the previous R60600.
For properties less than R500000 there is no transfer duty, representing a saving of up to R20600 at the R500000 level.
But this only applies to property transactions which are entered into from March 1, meaning that if a buyer has already signed a contract for the property or is going to sign one before March 1, the old rates apply.
Delit recommends that buyers not enter into any purchase agreements until March 1 to take advantage of the savings.
Whether you are a buyer or seller, please consult with your attorney how best you can avoid tax and not evade tax.
Some may try to tear up the old contract and replace it with a new one dated after February 28 2006. Better get legal advice on that one. By trying to save on reduced transfer duty, you may be risking the chance of an audit of all of your financial dealings.
Frans van Hoogstraten, property director at Werksmans Attorneys, says his firm has received a number of calls from buyers wanting to enter into new sales agreements after March 1. Not only does that require the co-operation of the seller, but I have my doubts that it will achieve the desired effect because details of the cancelled sale will have to be disclosed to the receiver when transfer duty declarations are submitted.
Article by: Nick Wilson - www.businessday.co.za