15 JUNE 2005


In December 2002 the Transfer Duty Act was amended to put a stop to avoidance schemes involving residential properties held in companies, close corporations and trusts. The Minister of Finance announced in his Budget Speech in February 2003 that further measures would be introduced to prevent the avoidance of transfer duty and to enable the Commissioner of the South African Revenue Service (SARS) to obtain civil judgements against persons who had failed to pay transfer duty.

Prior to the Act being amended in 2002, SARS commenced with issuing assessments on transactions involving some 1600 discretionary trusts. SARS holds the view that, even before the amendment to the Act, transfer duty was payable because -

The amount of duty and interest involved is about R130 million.

While it had been hoped to have a test case in this regard, the parties who challenged SARS have withdrawn their cases and paid the assessments. SARS is now taking legal action against parties who were previously assessed, but have not paid the duty and interest. In addition, assessments are now being raised against parties not previously assessed.

The assessments issued to the trusts are at the 10% rate of duty plus interest. The 2002 amendments to the Transfer Duty Act, however, provide that in the abovementioned circumstances, transfer duty at the rate applicable to natural persons is payable. The desire has been expressed by many parties to settle their dispute with SARS at the rates applicable to natural persons. SARS is accordingly prepared to settle these cases on the basis set out in the annexure to this media release. These settlements will be in terms of the settlement provisions contained in section 88D of the Income Tax Act, 1962, which apply mutatis mutandis to the Transfer Duty Act, 1949.

Persons wishing to settle their transfer duty assessments should contact the national Enforcement Unit before 31 August 2005.


For further media enquiries, please contact Adrian Lackay - 012 422 6037 or 083 388 2580



In light of the desire of SARS to finalise the cases as well as the wish expressed by many trustees of trusts owning residential property to resolve these issues, the following settlement proposals are made to the parties concerned:

If the trustees are prepared to register the properties in their own names, transfer duty at the rate applicable to natural persons will be applicable. The registrations must be in the name(s) of person(s) who effectively acquired the interest in the trust and financed the purchase of the residence. Registering the properties in the names of children (who may be beneficiaries in the trusts) could have serious donations tax implications and for that reason cannot be permitted.

As SARS is applying the principle that the purchaser(s) were in fact natural person(s), a registration of the residence in the names of the natural person(s) must be effected. Once the transfer duty and interest (at 10 % per annum) in respect of the original acquisition have been paid, the properties must be transferred from the trust to the natural person(s). The transfer must be effected by 31 December 2005. The transfer duty declaration(s) by the seller(s) should be completed by the present trustees and the value of the properties for transfer duty purposes will be the consideration given for the "purchase" of the interest in the trusts. If the name of a trust has been changed, the new name should be used.

Authority for this procedure is contained in Part IIIA of Chapter III of the Income Tax Act, 1962, which applies mutatis mutandis to the Transfer Duty Act. It should be noted that, if these proposals are accepted, the parties will enter into a settlement with SARS.

Should the trustee(s) wish the registration to remain in a trust, the 10% rate (with interest) will be payable. SARS has demanded payment of the duty and penalty and is proceeding with action to recover the amounts due.

Capital Gains Tax (CGT) Implications:

Any properties acquired before 1 October 2001 and transferred on or before 31 December 2005 in terms of the proposed settlement, will not be subject to capital gains tax in the hands of the trust which owned them ? i.e. the property will be regarded as having been acquired from the "old trust" by the natural person(s) on the date of the original transaction.

It should be noted that the fair value of the property will be the fair value as at the date of acquisition of the interest in the trust. This value may also be used as the base cost of the property for CGT purposes. However, the parties were free to obtain a valuation of the property, for CGT purposes as at 1 October 2001, provided such valuation was obtained on or before 30 September 2004.

If the interest in the trust was acquired after the CGT provisions came into operation on 1 October 2001, and the trust disposed of the residence, the CGT provisions will be applicable. There will be a gain in the trust on that date and the R1 million exemption applicable to natural person(s) does not apply. The natural person(s) will be deemed to have acquired the property on this date and the amount paid for the interest will be the base cost of the property.


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