The Western Cape branch of the Institute of Estate Agents of SA is seriously concerned about proposed legislation which, they say, could result in their agents being penalised for failure to investigate clients’ residency status even though they have no real way of doing so.

The new Revenue Amendment Act 32 of 2004 requires that where a non-resident sells property valued at over R2 million the agent must ensure that 5% of the sales price is withheld for the Receiver. If the non-resident sells through a local company or if his company is registered offshore, the amount to be held back is 7,5% - and if a non-resident sells through a trust, 10% of the sales price has to be retained.
 
“The legislation," says Vivien Marks, General Manager of the Western Cape branch of the Institute, is, we are told, designed to ensure that non-residents pay Capital Gains Tax as stipulated by law. Obviously, if they were paid in full and took all the money out of SA it might be difficult to get the amount owing back. We therefore understand the need for this law.”

But, says Marks, the Institute cannot accept that the agent must take full responsibility for establishing whether the seller is a non-resident.

“Our agents are simply not qualified to decide on this matter,” she said. “If they take the law seriously they will have to employ a specialist investigator and at this stage there appear to be almost no such people in SA. The government has no right to expect agents to fulfil this rôle – at their own expense and without the necessary “tools” to perform it.”

It is, says Marks, particularly worrying that, if the agent makes a mistake or is deceived by the seller, he or she could legally be responsible for the Capital Gains Tax owing to the Receiver.

“The whole issue,” added Marks, “is complicated by the facts that many South Africans living abroad have not given up their residency status while others living here or elsewhere often buy and sell through offshore companies.”

The Institute’s concern, said Marks, is shared by Professor Henk Delport of Nelson Mandela Metropolitan University. Talking to the Institute recently, he said that the state had no right to expect agents to perform an identification task of this kind for which nothing in their training has equipped them.

Marks has also drawn attention to what she regards as “confusing” clauses in the Prevention and Combating of Corrupt Activities Act of 2004.

“In the property world,” she said, “there are numerous activities for which a commission or kick-back can be paid. If, for example, an agent introduces a buyer to a colleague and the sale goes through, it is accepted that the referrer should get some reward. Similarly, if an agent passes on a buyer to a bond originator, a fee is often paid.
“The proviso in these cases is that both the payer and the recipient must declare the sums handled to the Receiver of Revenue.

“However, the wording of the Act now suggests that any action which influences the agent to do or not do something or to try to persuade some other party to act in a certain way can be regarded as corruption.”

It seems probable, said Marks, that so long as the sums paid or received are declared, these ultra-strict clauses will probably not be taken at face value – if they were, she said, many of the incentives to network and build up contacts in property would be worthless.

In the case of referrals to bond originators, she added, the Act could serve as a warning not to cease the practice but to declare all sums received.

“We understand that there have been cases where originators have quietly paid agents for a referral and that these sums have sometimes not been revealed to the Receiver.”