Transfer Duty. Assignments for Chapter 5 - PART 3. Paragraph 1 - Definitions. Paragraph 3 - By whom, when and to whom duty payable

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1 Assignments for Chapter 5 - PART 3 Transfer Duty See the mark allocation in the previous assignment Paragraph 1 - Definitions Question 11 (Part 2) September 2002 [4] A grants an option to B on 5 June 1999 for 5 years to purchase a property for R200, which was the fair value at that time. B exercised the option on 1 April 2002 by which time the fair value of the property was R250, What is the date of the transaction? [1] 11.2 On what amount will transfer duty be paid? Discuss briefly. [3] April R200, The transfer duty is calculated on the purchase price or the value of property as it was when the option was granted. Paragraph 2 - Imposition of transfer duty Question 1 (Part 2) September 2012 [5] You have been instructed to attend to the registration of the transfer from Mr Jones to Mr Singh of a 1/20th share in a sectional title unit purchased by Singh from Jones 31 January 2012 for the sum of R ,00. The seller is not the developer of the sectional title scheme and neither of the parties is a VAT vendor. The unit in question is situated on the Durban beachfront and operates on a time-sharing basis. Calculate, explaining the basis of your calculation, the transfer duty payable by Mr Singh in respect of this transaction. A very similar question was asked in Question 1 (Part 2) May 2003 for 5 marks Question 4 (Part 2) September 2011 [5] Your client has sold his undivided half share in a property to Mr X for R ,00 (one million rand). Show how you will calculate the transfer duty payable by Mr X on the transaction. Question 3 (Part 2) September 2010 [3] John Smith sells an undivided half share in and to Erf 219 Durban for the sum of R ,00 to Joe Bloggs. Calculate the transfer duty payable. Furnish details of the calculation. Paragraph 3 - By whom, when and to whom duty payable Question 1 (Part 2) September 2003 [2] Can a deposit on account of transfer duty payable be made to the South African Revenue Services where you are awaiting the determination of the amount of duty payable under the Transfer Duty Act 40 of 1949, or awaiting the valuation of the land or mineral rights? Motivate your answer. Yes. (See section 3(2) of the Transfer Duty Act 40 of 1949) Paragraph 4 - Penalty on late payments i Question 12.2 (Part 2) May 1997 [3] 12.2 Is it an offence not to pay transfer duty within six months from the date of sale? What will the consequences be if the transfer duty is not paid within six months? [3] Chapter 5 - Assignments for Transfer Duty 1

2 See the assignment on Chapter 11, Part 1, Endorsements - paragraph 9 - Section 45bis(1)(a) endorsement - Question 1.3 (Part 1) September 2003 for 11 marks. See the assignment on Chapter 2, Part 1, Transfer Procedure - paragraph Statements of Account - Question 18 (Part 2) September No, it is not an offence. Penalty at 10% per annum on the amount of transfer duty is imposed from 6 months after date of sale. Penalty is calculated in respect of each completed month from the end of the initial 6 months period to date of payment. [3] Paragraph 5 - Value of property on which duty payable Question 6 (Part 2) September 2007 [2] A sells a property to his son for R ,00 on 1 March He is obliged to file a sworn valuation of the property to the Receiver of Revenue and which valuation of the property is R ,00. On what amount will transfer duty (if any) be tendered and what would that amount be? Question 1 (Part 2) May 2000 [6] A is in financial trouble and instructs an auctioneer to sell his property of which the fair value is R200, by public auction. The property is sold at the auction for R150, to B, who happens to be the brother of A. 1.1 Discuss briefly on what amount transfer duty has to be paid and motivate your answer. [3] 1.2 A sells a half share in his property to B, a natural person for R100, What is the amount of transfer duty payable? [2] 1.3 A sells a 1/4 share in his property to a close corporation for R20, What is the amount of transfer duty payable? [1] (This is part of a 14 mark question) 1.1 Transfer duty is normally calculated on the purchase price or the fair value which ever is the greater. When a property is sold by public auction, transfer duty is only calculated on the purchase price even if it is below the fair value. Transfer duty will be paid on R150, [3] 1.2 R3, [1] 1.3 R2, [1] Paragraph 6 - Transfer duty payable on servitudes Question 10.1 (Part 2) September 2001 [4] 10.1 The owner of the dominant tenement in respect of a servitude of right of way has agreed to the cancellation thereof free of compensation. Neither the owner of the dominant tenement nor the owner of the servient tenement is registered as a vendor for VAT purposes. Is transfer duty payable in respect of the cancellation? Discuss briefly. [4] (This is part of a 10 mark question) Yes. The cancellation of the servitude is a transaction as defined in the Transfer Duty Act 40 of Although no compensation is payable, transfer duty will be payable on an amount by which the servient tenement s value was increased. SARS will normally accept a nominal value of R Paragraph 7. - Tri-partite Agreements i i Question 6 (Part 1) September 2002 [7] A sells a property to B for R120, B has paid an amount of R5, to A. B now informs A that he is no longer financially able to take transfer of the property. C is prepared to purchase the property from A for R120, and A has agreed to cancel the agreement between him and B and to sell the property to C on condition that A retains the R5, which B has paid to him. B has agreed to this. You now attend to the payment of transfer duty in respect of the sale from A to C. Which documents must be lodged with the Receiver of Revenue in respect of these transactions? See the discussion in the notes. Chapter 5 - Assignments for Transfer Duty 2

3 A similar question was asked in - Question 1 (Part 2) September 1999 for 8 marks. Paragraph 8 - Total value on which duty payable Question 8.1 (Part 2) May 2005 [1] 8.1 A property has been sold by your client on 10 January 2005 to a Trust for R ,00. The purchaser is to pay commission of 3% on the purchase price. At what rate and on what amount does the purchaser pay transfer duty? (1) The Trust will pay Transfer duty at 10% on R ,00. Paragraph 9 - Exemptions from duty i i i Question 1.4 (Part 2) Mei 2000 [8] A sells his property to B. As a general rule, transfer duty will be payable. In certain cases the purchaser is exempt from the payment of transfer duty. Discuss briefly. It is not necessary to refer to all exemptions. Refer only to eight (8) exemptions of your choice. [8] (This is part of a 14 mark question) See your notes for a number of exceptions. Paragraph Public Benefit Organisations (Previously known as Religious, charitable or educational institutions) i i Question 15 (Part 2) September 2010 [3] Your client, a church, has purchased immovable property upon which it intends to erect a church Does the church pay transfer duty? (1) 15.2 What is the procedure to be adopted? (2) Question 8.3 (Part 2) May 2005 [4] No transfer duty is payable if the property is to be used solely for religious purposes. Claim exemption from Receiver of Revenue. The documents lodged with the Receiver 1 should be supported by affidavit and proof of exemption from paying income tax. Question 10.2 (Part 2) September 2001 [4] 10.2 Is a religious, charitable or educational institution of a public character exempt from paying transfer duty? Discuss briefly. [4] (This is part of a 10 mark question) Yes, provided it is exempt from income tax in terms of section 10(1)(f) of the Income Tax Act of 1962 and the property is acquired for religious, charitable or educational purposes exclusively. Question 10 (Part 2) May 2001 [5] A church acquired property and was exempted from payment of transfer duty. Thereafter it uses the property for some purpose other than exclusively for religious purposes. What is the effect thereof? Discuss briefly. Transfer Duty shall now be payable in respect of the acquisition of that property and the date upon which the property was first used for a purpose other than religious purposes shall be deemed to be the date of acquisition thereof. Question 5.2 (Part 2) September 2000 [3] 5.2 A church purchases a property. Discuss briefly whether transfer duty will be payable, and, if not, describe the procedure to claim exemption. No transfer duty will be payable if the property is to be used solely for religious purposes. Claim exemption from the Receiver of Revenue. The standard seller/purchaser transfer declarations must be supported by and affidavit stating the fact that the property is to be used solely for religious purposes. The church must also be exempt from the payment of income tax. Paragraph Heirs & legatees i i i 8.3 A church purchases a property. Discuss briefly whether transfer duty will be payable and if not, describe the procedure to claim exemption. (4) 1 Die documents to be lodged with the Receiver in addition to the documens listed in the answer, are:- TD1, TD2 (part 1 and 2) and the deed of sale. Chapter 5 - Assignments for Transfer Duty 3

4 Question 6 (Part 2) May 2011 [4] Question 16 (Part 2) September 2010 [4] What form of assets not forming part of a deceased estate may be introduced to effect an equalisation in a redistribution agreement? Question 8.2 (Part 2) May 2005 [1] 8.2 Immovable property is bequeathed to a company, KMS Investments (Pty) Ltd in a will. Is transfer duty payable? Give reasons for your answer. (1) Exempt from Transfer Duty in terms of Section 9(1)(e)(1). Question 4 (Part 2) May 2002 [3] John and Mary Smith were married in community of property to each other. In their joint will they massed their estates and bequeathed the massed estate to their only child subject to a usufruct in favour of the survivor. Mary died and John adiated. Is any transfer duty payable in respect of the transfer of John and Mary s house to their child? The house is valued at R1,5 million. Discuss briefly. Transfer duty is payable on the value of the bare dominion of the half share which Mary holds in the property as the heir is not acquiring that half-share from a deceased estate. Question 3 (Part 2) September 2000 [2] Husband and wife, married in community of property, are the owners of a property. The spouses have signed a mutual will in terms of which they mass their estates and bequeath the property to their son subject to a life usufruct in favour of the survivor. The husband dies and the wife adiates. Describe how the transfer duty will be calculated in respect of the transfer of the property to the son. Transfer duty is exempted on the half share of the deceased father - (section 9(1)(e) of the Transfer Duty Act). Transfer duty is payable by the son in respect of the half share in the property he acquires from his mother. The value of the usufruct must however be deducted from the value of the property. The value of the usufruct is calculated by the use of tables published in terms of the Estate Duty Act. Transfer duty is then calculated on the value of the bare dominium and that amount is then divided by two. Question 5.1 (Part 2) September 2000 [3] 5.1 Immovable property is bequeathed to a company in a will. Is transfer duty payable? Discuss briefly. (This is part of a 6 mark question) 5.1 No transfer duty is payable. It is exempt from transfer duty in terms of section 9(1)(e)(1) of the Transfer Duty Act. It covers all instances where property is acquired from a deceased person in terms of the will of the deceased. 5.2 No transfer duty will be payable if the property is to be used solely for religious purposes. Claim exemption from the Receiver of Revenue. The standard seller/purchaser transfer declarations must be supported by and affidavit stating the fact that the property is to be used solely for religious purposes. The church must also be exempt from the payment of income tax. Paragraph Partnerships Question 10.3 (Part 2) September 2001 [2] 10.3 A property is registered in the name of a partnership and the partnership is now dissolved. The property is awarded to all the previous partners. Is transfer duty payable? [2] No. GENERAL QUESTIONS pertaining to various paragraphs of the whole chapter Question 5 (Part 2) May 2011 [3] A client intends acquiring a property for use by him as a dwelling. He seeks your advice as to whether, from a transfer duty point of view, it will make any difference whether he uses a trust or a company as the vehicle with which to purchase the property. Chapter 5 - Assignments for Transfer Duty 4

5 Question 4 (Part 2) May 2010 [10] Discuss the implications of the Transfer Duty Act No 40 of 1949 on the payment of duty in the following circumstances: 4.1 Any commission paid or payable in respect of the property by the person who acquired the property. Your answer must also deal with sales in execution. (2) 4.2 If property has been acquired by the exercise of an option to purchase or right of pre-emption (1) 4.3 If the purchaser has agreed to pay the costs of an overseas trip for the seller s mother-in-law additional to the purchase price. (1) 4.4 Acquisition of property by a municipality. (1) 4.5 Where a divorce settlement agreement, made an order of court, provides that the husband will be entitled to transfer of the wife s share in the property registered in the names of both spouses. He will pay the wife an amount of R (two million rand) in exchange for transfer of the wife s share in the property to him in terms of the settlement agreement which has been made an order of the court. (1) 4.6 Where a person who, as surety for payment of the consideration payable in terms of a deed of sale, pays the consideration and now seeks transfer of the property into his own name. (2) 4.7 Where there has been an error in registration and there is now a rectification transfer. (2) Question 14 (Part 2) September 2010 [6] A client intends acquiring a property for use by him as a dwelling. He seeks your advise as to whether, from a transfer duty and capital gains tax point of view, it will make any difference whether he acquires the property in his own name or uses a company as the vehicle with which to purchase the property. Question 13 (Part 2) September 2006 [12] 13.1 A and B entered into an Antenuptial Contract in A, the husband, donated Erf 213 in the township Seaview to B in the said contract which was legally registered. A now sells the said erf to X without the erf having been transferred to B. Can the transfer from A to X be registered without further ado? Discuss briefly. (3) 13.2 A is the owner of a property worth R ,00 and B is the owner of a property worth R ,00. They agree to exchange the properties on condition that A pays B R ,00 on registration of the exchange transfers. On what amount will transfer duty be payable in respect of each of the exchange transfers? Could you advise A and B of any other method to achieve the same result and at the same time save transfer duty? Discuss briefly. (5) 13.3 A intends donating his property worth R ,00 to his daughter. Which taxes will be payable? Can you advise A to construct the matter differently in order to save certain taxes? Discuss briefly. (4) 13.1 No. The transfer duty receipt in respect of the donation of the property by A to B must be lodged. The Registrar will not call for B s consent. [3] 13.2 Transfer duty will be payable on R ,00 in respect of each transfer. To save transfer duty, A must sell his property to B for R ,00 and B must sell his property to A for R ,00. The agreement must be subject to the condition that the transfers are to be registered simultaneously. Transfer duty will then be paid on R ,00 and R ,00. [5] 13.3 Transfer duty and donations tax will be payable. To save donations tax, A must sell his property to his daughter. The purchase price will be payable on demand and transfer may be proceeded without payment of the purchase price. A may then annually donate to his daughter so much as is allowed by law free of donations tax and bequeath to her in his will whatever remains owing at his death. [4] Question 7 (Part 2) May 2006 [6] On what amount is transfer duty payable and at what percentage, if any, as at 10 March 2006, in the following circumstances? 7.1 John Scott owns Erf 1 Hillside Township. The property is valued in the sum of R ,00. Neil du Plessis owns Erf 3 Hillside Township which property is valued in the sum of R ,00. The parties decide to swop their Chapter 5 - Assignments for Transfer Duty 5

6 respective properties. (2) 7.2 The Hill Billy Trust sells Erf 388 Alberton to Thuthuka Investment Company for the sum of R ,00. (1) 7.3 John Davies purchases Erf 222 Parktown from Evelyn Grant for the sum of R ,00 for the purposes of building a church. (1) 7.4 In the antenuptial contract which was entered into by Peter Jones and Mary Jones, Peter Jones promised his wife a half share in Erf 772 Greenside. The transaction to pass the half share to Mary Jones was never effected and now Peter Jones has sold the property to John Johnson for the sum of R ,00. (2) 7.1 Nil, as VAT is payable by the Vendor 2 [2] 7.2 Yes, R25 000,00 [2] 7.3 R625,00, which is 10% of R25 000,00 for three completed months [2] Paragraph 10 - Documents to be lodged at SARS i i Question 10.1 (Part 1) May 2001 [5] 10.1 A sells his property to his brother, B, for R200, List the documents required to be submitted to the Receiver of Revenue for purposes of transfer duty. VAT is not payable.[5] (This is part of a 15 mark question) See the notes. Paragraph 11 - Cancelled transactions & refund of transfer duty i i i Question 15 (Part 2) September 2009 [10] On the 15 th January 2009 James Cooke sold Erf The question is not specific as to whether the seller is a VAT vendor for purposes of the transaction, as he could be a vendor, but not for purposes of the transaction and in such event transfer duty will be payable and not VAT. Farrarmere to Alistar Coetzee for R ,00. No agent was responsible for bringing about the sale and no money was paid as a deposit. Coetzee subsequently found that he was unable to finance the acquisition and requested Cooke to agree to cancellation of the sale. Cooke agreed thereto (he received another more favourable offer for the property which he was anxious to accept). Cooke is to receive no consideration from Coetzee for the cancellation. Draw the Agreement for cancellation of sale, inventing such further details as you may consider necessary, bearing in mind the necessity to avoid possible transfer duty implications. Similar questions were asked in - Question 8 (Part 1) September 2002 for 10 marks Question 10.2 (Part 1) May 2001 for 10 marks Question 6.1 (Part 1) May 1997 for 6 marks for the drafting of an agreement of cancellation and 5 marks for documents to be lodged. See Example 5C - (Part 3). Question 3.4 (Part 2) September 1999 [6] 3.4 A sold a property to B for R200, B is unable to proceed with the transaction. A agrees to cancel the agreement on condition that A retains the sum of R10, which was paid to him by B. B has already paid the transfer duty in respect of the transaction to the Receiver of Revenue. B seeks your advice. Advise him what has to be done and whether he can claim a refund of the transfer duty paid by him. Which documents must be lodged with the Receiver of Revenue after the cancellation of the agreement? [6] (This is part of a 17 mark question) A refund for transfer duty can be claimed on a transaction cancelled before registration. The following steps should be taken: (a) an agreement of cancellation of the sale must be drawn and signed by both parties; (b) declarations of cancellation of sale must be signed by the seller and purchaser; and (c) the conveyancer who paid the transfer duty must complete the prescribed application form for a refund of the transfer duty. The Receiver will refund the transfer duty paid less Chapter 5 - Assignments for Transfer Duty 6

7 transfer duty on R10, (R100.00) which the seller retained. Documents to be lodged at the Receiver of Revenue See the notes [6] Chapter 5 - Assignments for Transfer Duty 7

8 Chapter 5 - Assignments for Transfer Duty 8