EASY WAY TO MAKE A QUICK PROFIT
X sells an immovable property to Y for R2 million. Before registration in the deeds office is effected, Y on-sells to Z who offered Y R2,5 million for the same property. With spring in his step, Y plans to fast track payment to him of the profit made: Y prepares an agreement between X, Y and Z (called a tripartite agreement because it is between three parties) in terms of which the sale between X and Y is cancelled, and X sells directly to Z for R 2,5 million. X will take his R 2 million and will pay the R500K to Y. Y smiles all the way to the bank, and never pays transfer duty in respect of the interim acquisition of the property.
SARS ENTERS THE FRAY
The Transfer Duty Act (‘the Act’) was amended some time ago precisely with the intention of preventing the above. As transfer duty is payable on the acquisition of immovable property (which is generally equated with registration of transfer of ownership), the Act was changed to make it illegal to avoid the payment of transfer duty in the above instance. Simply stated, SARS requires payment of transfer duty in respect of both transactions, the sale of X to Y, and the sale of Y to Z.
Notably, the Deeds Registries Act states that deeds are to ‘follow the sequence of their relative causes’, which means that you may not skip the recordal of a transaction in respect of land. Registration in the deeds office must follow the order of the transactions that pertains to a piece of land.
Will a nomination agreement work in this context?
Yes and no. A nomination agreement can provide assistance to a limited extent. Sometimes an agreement of sale is signed by a purchaser who then inserts the words ‘or nominee’ behind his name. The intention is to win time to name the ultimate purchaser. This might be for various legitimate reasons, such as the purchaser’s intention to purchase a shelf company to name as purchaser rather than acquiring the property in his own name.
However, SARS has put measures in place to avoid abuse of the nomination option by using it to avoid payment of transfer duty. The Act provides that a person who signs on behalf of a nominee must disclose the name and address of his principal (the ultimate purchaser) on the same day on which the agreement is accepted (in the case of auction sales) or concluded (in respect of all other sales). The effect of this is, for example, that if an agreement is concluded at 17h00 by a purchaser “or nominee”, the nominee must be disclosed before midnight that day, failing which double transfer duty will be payable.
For more information please contact us at info@stbb.co.za
