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Tax

South Africa has a highly accurate and modern system of property registration.
All properties in South Africa, other than unalienated State Land, are assigned an accurate diagram and title deed.

Transfer Duty Act
Capital Gains Tax

Transfer Duty Act

Introduction

The Minister of Finance announced a change in the rate of Transfer Duty in his budget speech on 19 February 2004.

Sales affected

All sales of property to natural persons on or after 1 March 2004 will benefit from the new lower rates. Sales to Companies, Close Corporations, Trusts etc will still attract Transfer Duty of 10% of the price.

New rates of Transfer Duty

Property value Rates of tax
R0 - R150 000 0%
R150 001 - R320 000 5% above R150 000
R320 001 and above R8 500 plus 8% on the value above R320 000

Old rates of Transfer Duty

Property value Rates of tax
R0 - R140 000 0%
R140 001 - R320 000 5% on the value above R140 000
R320 001 and above R9 000 plus 8% on the value above R320 000

Examples

The difference between buying a property before and after 1 March 2004 is shown in the following table

Price Old Transfer Duty New Transfer Duty
R200 000 R3 000 R2 500
R300 000 R8 000 R7 500
R500 000 R23 000 R22 900
R750 000 R43 400 R38 500
R1 000 000 R63 400 R62 900
R1 500 000 R103 400 R102 900
R2 000 000 R143 400 R142 900

IMPORTANT NOTICE REGARDING STAMP DUTY

TO ASSIST THE HOMEBUYER – STAMP DUTIES ON MORTGAGE BONDS WILL BE REMOVED WITH EFFECT FROM 1 MARCH 2004.

IMPORTANT NOTICE REGARDING NOMINEE PURCHASERS

Section 16 of the Transfer Duty Act, which states as follows:

(1) Where property is sold to a person who is acting for some other person, the person so acting shall disclose to the seller or his agent the name and address of the principal for whom he acts:

(i) if the sale is by auction, immediately upon acceptance by the auctioneer of his offer; or

(ii) is the sale is otherwise than by auction, immediately upon conclusion of the agreement of sale.

(2) Any person who fails to comply with the provisions of sub-section (1) shall, for the purpose of the payment of the duty payable in respect of the acquisition of the property in question, be presumed, unless the contrary is proved, to have acquired the property for himself".

As a result of recommendations made by Finance Minister Trevor Manuel in his Budget Speech in March, the Receiver of Revenue for the Western Cape Region has, with effect from 1 September 2003, adopted a strict interpretation of the above section. "Immediately" is now deemed to mean "the same day" and, as from 1 September 2003, all nominations made in terms of a nomination clause in a deed of sale must be made and accepted on the same day that the sale was entered into, in other words, by midnight on the date of sale.

If the nomination is made after the midnight deadline, the transferee will have to pay double transfer duty.

Minister Manuel had complained that the right to nominate process was being abused by certain property dealers who were making increased use of nominee purchasers to avoid the payment of transfer duty and/or VAT on re-sale.

The new ruling has been in force in other provinces for some months now but was only implemented in the Western Cape with effect from 1 September 2003. A senior official in the Transfer Duty section at the Receiver of Revenue's office has confirmed that the ruling will apply to any sale concluded on or after 1 September 2003 but will not be retrospective in that the ruling will not apply to deeds of sale with nomination clauses entered into prior to 1 September 2003.

The effects of the ruling are as follows:

1. It will no longer be possible to nominate as transferee a Trust which is not yet in existence.In terms of the Trust Property Control Act, no agreement may be entered into on behalf of a Trust until it has been duly registered by the Master of the High Court and Letters of Authority issued in favour of the Trustees.

2. Where a purchaser wishes to nominate as transferee a company or close corporation not yet in existence, the purchaser will have to sign the deed of sale "on behalf of a company or close corporation not yet in existence" and the deed of sale will have to be ratified by the directors or members of the company or close corporation once it has been registered.

Estate agents are cautioned that, if they sign up any deeds of sale which include a nomination clause after 1 September 2003 and fail to notify the seller and purchaser of the new ruling, they may face possible disciplinary steps by the Estate Agency Affairs board as well as a possible damages claim by the parties.

Comment

Trevor Manual's budget was generally well received and the reduction in transfer duty and the removal of stamp duties is welcome.

Do not cancel sales entered into before 1 March 2004 and sign new agreements after that date to benefit from the new tax rates. The Receiver of Revenue will disregard the cancellation and impose Transfer Duty on both transactions. The small saving is not worth the risk.  ...Top

Capital Gains Tax

THE LAW IN BRIEF

Since the announcement of the introduction of Capital Gains Tax, there has been much consternation and uncertainty surrounding the topic, particularly with regard to its potential impact on the property market.
In its simplest form, a capital gain arises when an asset is sold for an amount in excess of its original purchase price, however only the increase in value after 1 October 2001 will be subject to tax. The profit, or the difference, is the capital gain. The government has proposed that individuals be granted an annual exclusion on the first R1 million of the gain (or loss), and then pay tax on a quarter (25 percent) of the remaining gain, according to the individual's tax rate. The new law brings the South African tax system into line with those of many other countries such as Australia, USA, Canada, Britain and Botswana.  ...Top

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