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Buying a house and paying transfer duty – Separate rights equals separate obligations

Tuesday, 07 November 2017   (0 Comments)
Posted by: Author: Louis Botha
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Author: Louis Botha, (cliffedekkerhofmeyr)

In our recent Tax and Exchange Control Alert of 13 October 2017, we referred to the number of tax court judgments that were recently published by SARS on its website. One of these cases is the matter of Ms A and Mr B v The Commissioner for the South African Revenue Service (Case No IT13974 & 13993) (as yet unreported), handed down by the Tax Court on 24 March 2017. In this case Ms A and Mr B (Taxpayers) appealed against SARS’s decision regarding the transfer duty payable on a property which they purchased in terms of a written sale agreement.


The Taxpayers are life partners and entered into a written sale agreement on 7 August 2007, in terms of which they purchased a sectional title unit together with two parking bays (Property) from the seller. In terms of the sale agreement, Mr B would acquire the right of “habitatio” and Ms A would acquire the “bare dominium” for a total purchase price of R4.2 million. The agreement also stated that the Taxpayers would acquire “the rights of habitatio and the bare dominium respectively but jointly”. The Taxpayers each filed separate transfer duty declarations (TD2 declaration) with SARS. Ms A indicated in her TD2 declaration form that transfer duty was payable on an amount of R2,869,103.40 and Mr B indicated an amount of R1,330,896.60, which, together, totaled R4.2 million. Based on these declarations, the Taxpayers owed transfer duty in the amount of R225,998.49, but SARS argued that transfer duty must be calculated on the total purchase price of R4.2 million, in which case the transfer duty would be R281,000 and about R55,000 more than the transfer duty calculated by the Taxpayers. The Taxpayers paid the amount of R281,000, but appealed against SARS’s decision.

Arguments raised by the parties

The main basis of the Taxpayers’ appeal was that on a proper reading of the sale agreement, they acquired two separate real rights, namely the right to habitatio and the right to bare dominium, and therefore transfer duty should be payable on two distinct and divisible transactions and not on the full amount of R4.2 million recorded in the sale agreement. Mr B testified that the sole reason for structuring the transaction in the manner which they did was to protect the Property against his potential creditors, who could hold him personally liable as he was a director of a law firm.

On the other hand, SARS argued that the written sale agreement failed to make provision for separate considerations of the two distinct rights and as such deemed the contract indivisible. It argued that more than one “property” was acquired in one transaction with one composite consideration being the amount of R4.2 million. SARS conceded that if the amounts reflected in the TD2 declarations had been apportioned in the agreement, the transfer duty that was payable according to the Taxpayers would have been correct.

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