SARS on transfer duty rates

20 February 2006

In his Budget Speech on 15 February 2006, the Minister of Finance announced
that new transfer duty rates as set out below will apply with effect from 1
March 2006.

Natural persons

The threshold at which transfer duty becomes payable has been increased from
R190 000 to R500 000. The new graduated rates for natural persons are as
follows:

Value of Property: Rate of Duty
R0 to R500 000: 0%
R500 000 to R1 million: 5% of the value above R500 000
Over R1 million: R 25 000 plus 8% of the value above R1 million

Companies, trusts and other juristic persons

The flat rate of 10% has been reduced to 8%.

Effective date

The new rates will apply in respect of property acquired on or after 1 March
2006. The Transfer Duty Act, 40 of 1949, defines “date of acquisition” as
follows;

“(a) in the case of the acquisition of property (other than the acquisition
of property contemplated in paragraph (b)) by way of a transaction, the date on
which the transaction was entered into, 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 and, in the case of the acquisition of
property otherwise than by way of a transaction, the date upon which the person
who so acquired the property became entitled thereto: 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 upon which the option
or right of pre-emption was exercised;

(b) in the case of the acquisition of property in terms of item 8 of
Schedule 1 to the Share Blocks Control Act, 1980 (Act 59 of 1980), and if
section 9 of this Act does not apply to that acquisition, the date of the
written request referred to in sub item (1)(b) of the said item 8;”

An ordinary purchase and sale agreement for fixed property is dealt with in
paragraph (a), which 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

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

SARS is aware that some buyers of fixed property may 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. It should be noted that where a property transaction is
cancelled for the purposes of avoiding or evading transfer duty, there is no
true cancellation of the agreement and duty will be raised as if the original
agreement had not been cancelled. (Secretary for Inland Revenue v Hartzenberg
(1966(1) SA 405 (AD)).

For further media enquiries, please contact:
Adrian Lackay
SARS Communication
Cell: 083 388 2580

Issued by: South African Revenue Service
20 February 2006