How is transfer duty calculated when someone buys an interest in a property-owning company?
16 July 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: Would you
please let me know the process for sorting out a transfer duty problem (deemed
transfer duty, actually).
One of my clients owned 50% interest in a property-owning
close corporation and has recently bought the other 50% interest, so that he now
owns 100% of the members’ interest. We
have asked a conveyancer to assist with the payment of deemed transfer duty but
this isn’t going very well (the deemed transfer duty calculation is four times
what it should be). If possible we would
like to deal with someone other than the call centre regarding this query.
Would you please let me know whether we can contact a SARS branch
manager or anyone else to assist in this regard?
A: You can
contact the SARS branch manager. In
SARS’s Transfer Duty Guide (2013 version) it is stated that "general queries on
transfer duty matters and transactions lodged on eFiling should be sent to ETD@sars.gov.za and technical queries and
refund applications can be forwarded to TransferDuty@sars.gov.za. The guide is available at the following link:
We are not sure what you mean by "deemed transfer
duty”. From the facts we accept that the
"50% interest in property owning close corporation” is in fact a "member's
interest in a residential property company” (as envisaged in paragraph (d) of
the definition of ‘property’ in section 1 of the Transfer Duty Act. The term ‘residential property company’ is
also defined in section 1 of the Act.
The sale (or acquisition) thereof is a ‘transaction’, as defined in section
1 of the Act – see paragraph (b).
The transfer duty is then levied on ‘the value of (any)
property’ which is principally the consideration payable by the person who has
acquired the property or the declared value of the property – see section
Section 6 provides for certain amounts to be added to the
consideration. It is quite possible that
the SARS is (or will be) of opinion that the consideration payable or the
declared value is less than the fair value of the property in question.
SARS may then determine the fair value of that property, and
thereupon the duty payable in respect of the acquisition of that property will
have to be calculated - in essence the duty is based on the greatest of the
fair value (so determined) or the consideration payable or the declared value –
see section 5(6).
You will notice that the definition of fair value (in
section 1) in this regard would be the fair market value of the property held
by the CC without taking into account, amongst others, any loan as is
attributable to the member’s interest – see example 10 in the guide referred to
Note also that section 2(5) requires that the transfer duty
rates in terms of section 2(1)(b) cannot be applied directly to the
consideration for the individual transaction (the acquisition of the 50%). The
fair value of the entire property must first be established and only then are
the rates applied to that value. See
examples 20 and 21 in the guide.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.