TRANSFER DUTY

B3Transfer duty is a tax levied upon the purchaser of immovable property situated in South Africa.[1] The duty is levied in accordance with the following sliding scale and is based on the value of the property which is the subject of the transfer:

Value of the property (R)

 

Rate

 

0 – 900 000

 

0%

 

900 001 – 1 250 000

 

3% of the value above R900 000

 

1 250 001 – 1 750 000

 

R10 500 + 6% of the value above R 1 250 000

 

1 750 001 – 2 250 000

 

R40 500 + 8% of the value above R 1 750 000

 

2 250 001 – 10 000 000

 

R80 500 + 11% of the value above R2 250 000

 

10 000 001 and above

 

R933 000 + 13% of the value above R10 000 000

 

While the sliding scale above previously only applied to natural persons acquiring property, this is no longer the case, and legal persons too are subject to transfer duty based on the above table. (Previously, legal persons were subject to transfer duty simply at the maximum rate in the table being applied to the entire value of transfers where a legal entity bought property).

Based on the above table therefore property transfers involving property worth less than R900,000 are effectively exempt from transfer duty, although the tax exposure may quickly thereafter jump to involve significant amounts. From the perspective of individuals buying property financed by way of a mortgage bond registered in favour of a lending bank, the duty quickly becomes a material consideration when purchasing a property, considering that the financing of the duty is typically not covered by financing provided by a commercial bank and which therefore may require the duty to be settled by way of existing cash resources available to prospective buyers.

Most notably, property transfers on which the transfer duty may be levied are not limited to transfers of immovable property only, but also includes the transfer of shares of so-called “property rich residential companies”, that is the sale of shares in a company where more than 50% of the value of such a company is derived from residential property owned by that company.[2] [3]

Various exemption apply in respect of transfers of property where the transfer duty will not be levied.[4] These include where the transfer involves a transaction where the relevant group relief provisions of the Income Tax Act[5] are applied, or where the transfer is subject to VAT (i.e. where the seller sells the property as part of its VAT enterprise).[6]

[1] Section 2(1) of the Transfer Duty Act, 40 of 1949

[2] See paragraphs (d) and (e) of “property” in section 1 of the Transfer Duty Act.

[3] Interestingly, the anti-avoidance provision does not extend to shares transferred in companies which own non-residential property.

[4] Section 9 of the Transfer Duty Act.

[5] 58 of 1962

[6] Section 8(15)

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

WELCOMING TAX NEWS FOR FRANCHISE OWNERS

B2The Tax Court has upheld a decision that a tax deduction allowed by section 24C of the Income Tax Act may be applied to franchisee costs. Section 24C permits the deduction of certain expenses in the current tax year assessment, where those expenses are not yet incurred, on the basis that these expenses will contractually be incurred in future years. This tax allowance protects businesses from being taxed on earmarked funds that bloat their annual earnings.

Where did this decision come?

The appeal involved the taxpayer (restaurant chain) against additional assessments raised by SARS for its 2011 to 2014 years of assessment. They arose from SARS’ refusal of deductions claimed by the taxpayer as allowances in respect of future expenditure in terms of section 24C of the Income Tax Act.

The crux of the dispute lies in whether or not the income received by the taxpayer from sales of meals to its customers can properly be regarded as arising directly from – or put differently, accruing in terms of – the franchise agreement itself. The taxpayer maintains that it can whereas SARS maintains it cannot.

However, as far as franchisees are concerned, it is clear that where a franchise agreement sets out an obligation to incur future expenditure, such expenditure may very well fall within the beneficial parameters of section 24C of the Act.

The Court’s decision

The Tax Court held that there need not be one physical contract document to give rise to section 24C’s benefit. Furthermore, while different parties were involved (the franchisor and the restaurant’s customers), the franchisee’s agreements with each were “inextricably linked” and “not legally independent and separate”.

The income deducted was, therefore, regarded as earned under the same contract as the taxpayer’s future expenditure, fulfilling the requirements of section 24C.

Reference:

  • B v Commissioner for the South African Revenue Services (IT14240) [2017] ZATC 3 (3 November 2017)

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

DIVIDENDS TAX RETURNS

B1

With effect from 1 April 2012, dividends tax was introduced to replace the then “secondary tax on companies” (or “STC”). The tax is currently levied at 20%. The dividends tax regime brought with it a requirement for dividends tax returns to be submitted periodically (if even no liability for dividends tax arose) and we wish to bring to our clients’ attention when this would be required.

From 1 April 2012, dividends tax returns were required for all taxpayers who paid a dividend.[1] Although not initially required, but the Income Tax Act was subsequently amended retrospectively to provide therefor. Returns were, from that date, not required for dividends received though. However, through various amendments being introduced, the scope of the dividends tax compliance regime was broadened significantly. With effect from 21 January 2015, dividends tax returns were also made compulsory for all dividends tax exempt (or partially exempt) dividends received.[2] The most significant implication flowing out of this amendment is that from this date, all South African companies receiving dividends from either South African companies, or from dual-listed foreign companies (to the extent that the dividend from the foreign company did not comprise a dividend in specie). The requirement for dividends received from dual-listed foreign companies to also carry with it the requirement for a return to be submitted was however removed a year later, with effect from 18 January 2016.

Where dividends are paid by a company, or dividends tax exempt dividends are received by any person from South African companies, the relevant returns (the DTR01 and/or DTR02 forms) must be submitted to SARS by the last day of the month following the month during which the dividends in question were received or paid. In those instances, where a dividends tax payment is also required, payment of the relevant amount of tax is to be effected by the same date too.[3]

Although the non-submission of dividends tax returns at present to not carry any administrative non-compliance penalties, we always encourage our clients to ensure that they are fully compliant with relevant requirements prescribed by tax statutes. We would therefore encourage our clients to revisit their dividends history and ensure that their records and returns are up to date and as required by the Income Tax Act.

[1] Section 64K(1)(d) of the Income Tax Act, 58 of 1962 (“the Income Tax Act”), as it read at the time.

[2] Section 64K(1A) of the Income Tax Act. Dividends received from regulated “tax free investment” accounts do not require a return to be submitted.

[3] Section 64K(1)(a) to (c)

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)