May 8, 2017
May 8, 2017

Property related transactions are typically significant transactions, and therefore tax considerations linked thereto should be carefully considered. One such consideration involves the timing of the disposal of immovable property that was held by persons as capital assets. Sales of such property will comprise a transaction subject to capital gains tax (“CGT”). This article considers when the property in question will have been “disposed” of for CGT purposes, and which surprisingly appears very often NOT to be the date of transfer in the Deeds’ Office (which many assume to be the case).

Paragraph 13 of the Eighth Schedule[1] determines when an asset is considered to be disposed of for CGT purposes. This is significant, since the time of disposal will ultimately determine in which tax year the resulting capital gains should be taxed in. In terms of this provision,

“[t]he time of disposal of an asset by means of-

(a) a change of ownership effected or to be effected from one person to another because of an event, act, forbearance or by operation of law is, in the case of-

(i) an agreement subject to a suspensive condition, the date on which the condition is satisfied; [or]

(ii) any agreement which is not subject to a suspensive condition, the date on which the agreement is concluded…”

It follows that where a property is sold, subject to certain suspensive conditions, the property will only be considered to have been disposed of once those suspensive conditions have been satisfied, irrespective of when the agreement is signed. Where no suspensive condition exists however, the disposal takes place when the agreement is concluded between the parties.

In the context of immovable property, the belief in practice is often that registration of transfer with the Deeds’ Office is a suspensive condition for the sale of the property to have been effected. It is quite often even listed as such in the agreement. However, SARS’ Comprehensive Guide to CGT[2] persuasively argues otherwise. In terms of SARS’ interpretation, SARS concedes that delivery of immovable property takes place through registration of transfer with the Deeds’ Office. However, SARS would argue, delivery is not a suspensive condition of sale but merely a term of contract. Even without delivery through formal transfer, the seller of a property would have already acquired certain personal rights, and incurred obligations, towards the purchaser when entering into the sales agreement earlier. The disposal is therefore deemed to take place when the sales agreement is signed, and in the absence of further suspensive conditions in the agreement, not when transfer is registered some two months later only.

This is significant not only for purposes of accurate disclosure for tax return purposes, but also has the implication that agreements signed close to a taxpayer’s year-end will result therein that the taxpayer will likely be liable for provisional tax on the sale of the property. Where the agreement of sale has been signed before yearend, but transfer only taking place thereafter, the taxpayer will not yet have received the cash from the sales transaction which it would otherwise have been able to utilise towards the payment of the consequent provisional tax obligation that may have arisen.

[1] To the Income Tax Act, 58 of 1962

[2] Issue 5 at 6.3.5

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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