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Transfer duty

After the various amendments in transfer duty rates over the past few years, culminating in the substantial reductions announced in the 2006 budget, transfer duty brackets are to remain the same for the 2008/9 financial year with the exempt threshold for transfer duty at R500 000. The upper threshold remains at R1 million.

For property values above R500 000, the rate of transfer duty remains at 5% up to R1 million, and for properties costing more than R1 million the rate is R25 000 plus 8% on the value above R1 million. Transfer duty on acquisitions of properties by persons other than natural persons also remains at 8% of the value.

The 2006 transfer duty adjustments were a major attempt by Government to grant effective tax relief for lower-income earners by trying to ensure that most homes affordable by low income earners fall under the tax threshold. While some purchasers argued that as property prices continued to increase up to at least 2005, the transfer duty reductions in 2006 were mainly negated by the substantial increase in property prices, residential property prices have however slowed down in the last few years compared to those 4 or so years leading up to the 2006 reductions. 

Stamp duty on leases

The Minister of Finance yesterday announced that Revenue is considering an outright repeal of the remaining aspects of stamp duty on leases "in order to simplify administration and compliance".  This has been on the agenda for the last few years and stamp duty on leases effectively only remains in respect of leases that are longer than 5 years. This clearly reduced the compliance burden for taxpayers entering into short rental agreements, and the administrative burden on SARS.

However the aspect of transfer duty and leases has again been raised and the Minister has announced that the total repeal of stamp duty could lead to the undermining of transfer duty, and it is contended that perhaps transfer duty should be applied to long term leases. Revenue appear to have held the view for some time now that the acquisition of a long term lease is akin to ownership of the property, and that accordingly a tenant should perhaps pay transfer duty on a similar basis as if he had taken ownership of the property.

As far back as the 2004 budget, the Minister expressed concern that long-term leases were being taxed at much lower rates than property transfers and that stamp duty on leases should be brought more in to line with transfer duty rates. The 2007 budget review provided that the relationship between the VAT Act, Transfer Duty Act and stamp duties on long-term leases would be examined.

The 1 January 2005 provisions governing stamp duty on leases remains in place, with stamp duty charged at a flat rate of 0.5% or 50 cents per R100 or part thereof of gross rental for leases for periods longer than 5 years, subject to certain provisos.

While the Stamp Duties Act places the legal obligation to stamp a lease on the landlord, the landlord usually passes this liability onto the tenant in the lease agreement.

Re-examination of taxation in the South African real estate sector

Not dealt with in the budget as such, but of interest to those in the real estate industry and dealing with the issues of various property taxes, is a recent study which has been commissioned by The Tax Policy Unit, National Treasury and SARS relating to a study to inform government policy on the economic, administrative and legislative implications resulting from the interaction between the VAT, Transfer Duty and Stamp Duty Acts and to explore possible alternatives to address the complications that arose from the interaction between these three Acts.

The terms of reference of this project includes evaluating the economic impact, administrative and compliance implications of the various types of property taxes, focusing in particular on the nexus between the VAT Act, Transfer Duty Act and Stamp Duty Act, exploring the possibility of de-linking the previously mentioned Acts, and exploring the possibility of designing the Transfer Duty Act as a source of revenue for municipalities receiving revenue earmarked for that particular municipality.

Following the introduction of VAT long after transfer duty and stamp duties, provisions were created in the respective acts to impose only one of these taxes on a transaction, but there is a concern expressed by Revenue that in limiting the incidence of "double" taxation in come circumstances has led to eliminating the tax in total where previously transfer duty may have been payable. One of the suggestions is to impose both VAT and transfer duty on all fixed property transactions although it is acknowledged that this will necessitate a reduction in the current transfer duty rates.

Capital gains tax

It is proposed in the 2008 budget to increase the annual exclusion threshold for capital gains or losses from R15 000 to R16 000, a relatively minor adjustment.

This follows quite a few changes to monetary thresholds last year which were adjusted up to take into account the effects of inflation. This included the annual exclusion threshold for capital gains or losses from CGT from R12 500 to R15 000 per year applicable to natural persons and special trusts, and the threshold below which no capital gains tax is imposed at death, from R60 000 to R120 000. The R1,5 million threshold for primary residences, which was last increased with effect from 1 March 2006, remains unchanged.

Value added tax

The  2008 budget  proposes an increase in the compulsory VAT registration threshold from an annual turnover of R300 000 to R1 million.

Estate duty

The generous increase in the estate duty threshold to R3.5 million last year remains unchanged, as does the rate of estate duty, at 20%. However a proposal announced yesterday indicating that a general anti-avoidance rule will be added to the Estate Duty Act (which currently contains no such general rule) as well as specific anti-avoidance rules to "prevent the artificial manipulation of estate values through the use of short-term trusts and similar arrangements".  The suggestions appear rather ominous in respect of the common use of trusts for estate planning purposes. Taxpayers will however have to wait for further information from Revenue to see what will be proposed.

Donations tax

The threshold below which no donations tax is payable, remains at R100 000, with the rate unchanged at 20%.