SOUTH AFRICAN REVENUE SERVICE: INLAND REVENUE
OFFICE OF THE COMMISSIONER FOR INLAND REVENUE
PRACTICE NOTE: NO 3
DATE: 24 MARCH 1997

STAMP DUTY: MORTAGE BONDS AND COSTS CLAUSES

1. Item 7 of Schedule 1 to the Stamp Duties Act, 1968 (Act No. 77 of 1968) (the Stamp Duties Act) provides that in determining the amount of any debt secured or to be secured, which amount forms the basis of the stamp duty, any sum separately secured by the bond to cover costs incurred in connection with the debt is excluded from the dutiable amount.

2. Considerable uncertainty has recently arisen as to the liability in terms of the Stamp Duties Act of the so-called "cost clause" (or additional sum) where the clause is so worded that the amount primarily included to cover costs is also available to secure further advances to the mortgagor.

3. The view is held by the South African Revenue Service that even if an amount is separately secured in terms of a bond to primarily cover costs, such amount will be subject to stamp duty if it is also available to secure future debts (further advances to the mortgagor).

   Only an amount which is separately secured to exclusively cover costs, which amount is not available to secure further advances, may be excluded from the dutiable amount.

   Where it is not clear from the reading of the bond whether the amount specified for costs is or is not available to secure further advances, the amount will be subject to stamp duty.

4. Where any doubt exists as to the liability of an instrument the document should be forwarded to the appropriate Receiver of Revenue for consideration.