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NEW AMENDMENT RELATING TO Transfer of property from a company, CC or trust INTO THE NAME OF AN INDIVIDUAL

SARS has passed the necessary legislation to open the window of opportunity slightly wider in respect of certain properties and persons.  In terms of the amended legislation, homes can now be distributed out of corporate entities to persons other than the original funders.  The relief also accommodates "multi-tier structures" so that tax payers who held their homes through a multitude of corporate entities and trusts can also take advantage of the legislation.  However relief will only apply if the relevant Close Corporation, Company or Trust is liquidated, de-registered or otherwise wound up within 6 (six) months of the disposal. 

The new legislation applies to corporate entities and trusts that dispose of their properties after the 1st October 2010 but before the 31st December 2012.  It no longer matters when the property is transferred into the name of the new owners but only when it is disposed of. 

Due to the large savings on Capital Gains Tax and on dividends tax we strongly suggest that clients who own close corporations and companies which own immovable property make use of the opportunity to transfer such properties to their individual names.  In the instance of those clients who own trusts which own immovable property, consideration should also be made as to whether one should take advantage of this window of opportunity although the considerations are less strong in the case of a trust.

The requirements briefly are as follows:-

  • The property must be transferred to one or more natural persons;
  • These persons must have ordinarily resided in the property and mainly used it for domestic purposes during the period commencing 11th February 2009 and ending on the date when the disposal took place;
  • The natural persons must be persons which are defined as connected persons for tax purposes in relation to the entity which holds the residence. The connected persons in the case of a Trust include beneficiaries of the Trust as well as their relatives such as their spouses, children and spouses of children and grandparents and in the case of Companies and Close Corporations, would include any natural person who hold alone or together with their relatives directly or indirectly 20% of the shares or member's interest in the Close Corporation or Company;
  • Steps must be taken to liquidate, wind up or deregister the Close Corporation, Company or Trust within 6 (six) months of the disposal of the residence.

In the case of a Close Corporation and Company one saves paying dividends tax and no Capital Gains Tax is paid in respect of the transfer which means that when Capital Gains Tax is eventually paid there will be a large saving in regard to the same.  When one considers that the Capital Gains Tax payable by a Company or Close Corporation is 14% whereas the amount payable by an individual is between 0% and 10% one can see the dramatic savings which can be effected in regard to Capital Gains Tax.  Even more importantly, an individual who sells his primary residence is exempted from paying Capital Gains Tax on the first R1 500 000.00 which means that by transferring the property into the name of the individual a huge saving will be effected.  (When it comes to Close Corporations and Companies and the transferees are not the original shareholders of such Close Corporation or Company but rather shareholders who acquired the shares after the Company or Close Corporation had acquired the residence and in the event that the residence constitutes 90% or more of the value of such Close Corporation or Company, then the transferees will be deemed to have acquired the residence for the same costs and at the same date as they have acquired the shares plus any amounts they incurred in improving the residence).  As dividends tax is presently 10% a further large saving can be effected by utilizing the window of opportunity.
 
It may be argued that the window of opportunity only applies to residences and that common use areas and other assets will not fall under the legislation

As the legislation does not make specific mention of any exemption from Donations Tax, in theory it could mean that Donations Tax could be charged on the difference between the transfer value and the actual value of the residence.  It is however unlikely that the Revenue Authorities would adopt this approach.

Normal transfer fees, bond cancellation fees and bond registration fees will apply and one will have to arrange with the necessary financial institution to effectively "transfer" the bond from the relevant entity to the natural person who takes over the property.

Please note that this not is meant to be a comprehensive exposition on the effects of Section 9(20) of the Transfer Duty Act 1949 and you are strongly urged to take legal advice before making any decisions in regard to the same.

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A BRIEF GUIDE TO PROPERTY TRANSFERS IN SOUTH AFRICA

WHAT IS CONVEYANCING?

Conveyancing is the legal process whereby ownership in immovable property is transferred from one party to another and related aspects such as the registration of mortgage bonds and real rights in respect of immovable property.  Immovable property is any land (whether improved or not) such as a dwelling house, a farm, a vacant erf or a sectional title unit.  A conveyancing transaction involves a number of steps which normally begins with a Deed of Sale and continues through to the registration of transfer of ownership or the registration of the mortgage bond in the Deeds Office, the reconciliation of finances and the ultimate payment of the purchase price to the Seller.

WHAT IS A CONVEYANCER?

A conveyancer is an attorney with a post-graduate qualification who by law is the only person who can register property transactions in the Deeds Offices.  This is necessary to ensure the protection of the interest of the parties to the transaction and to maintain the high standard of land registrations.

THE SALE OF IMMOVABLE PROPERTY: STEP BY STEP

Agreement of sale – a written agreement in which the Purchaser, the Seller and the immovable property as well as the purchase price is specified, is essential to constitute a binding agreement of sale.  A Deed of Sale must be signed by both the Purchaser and the Seller or a person who has been authorized by such party in terms of a written Power of Attorney.    A verbal contract for the sale of immovable property is unenforceable

Transfer of the property – On receipt of the Agreement of Sale the conveyancer takes the necessary steps to effect registration of transfer of the immovable property in the relevant Deeds Office.  Both the Purchaser and the Seller will be required to call at the offices of the Conveyancer to sign the necessary transfer documents which have been prepared by the Conveyancer and which will enable him to effect transfer.  The Conveyancer requires the following:-

    • Upon receipt of the documents referred to in A – E:-
  • Transfer and/or bond documents are drawn;
  • Accounts prepared for both seller and purchaser;
  • Both Seller and Purchaser telephoned to arrange appointment for signature;
  • The Purchaser is requested to pay the balance of the purchase price, costs and disbursements;
  • Guarantees are requested from the Bond Attorneys.
    • After signature of documents by both Seller and Purchaser and payment of disbursements by Purchaser:-
  • Obtain transfer duty receipt;
  • Obtain rates clearance certificate.
    • After receipt of guarantees:-
  • Forward guarantees plus payment of bond cancellation costs to the existing bondholder’s attorneys.
    • After receipt of clearance certificate and transfer duty receipt:-
  • Liaise with the relevant parties to arrange lodgement.
    • Transfer is effected in the Deeds Office.
    • After Registration:-
  • Advise all parties of registration;
  • Present guarantees for payment;
  • Obtain payment of balance of deposit (if applicable)
  • Do final account;
  • Request refund of overpayment (if any) from local authority and bond holder.
    • Upon receipt of payment i.t.o. guarantee presented:-
        • Finalize the accounts of the Seller and Purchaser;
        • Arrange for parties to collect payment;
        • Request refund of overpayment of rates, etc.
    • Upon receipt of documents from Deeds Office:-
  • Forward Title Deeds to bondholders for safekeeping, or if no bond, arrange with Purchaser to collect documents.

COSTS INVOLVED

The costs relating to the transfer of fixed property fall into the following categories:-

  • Transfer Fees;
  • Bond fees;
  • Transfer duty or VAT;
  • Rates and Levies;
  • Deeds Office levy;
  • Stamp duty on bond.

HOW LONG DOES THE PROCESS TAKE?

The period of time it takes to lodge a transaction in the Deeds Office depends on the co-operation of the parties and their contractual arrangements.  After the documents are completed and the rates and taxes an the transfer duty paid, the documents are lodged at the Deeds Office.   The usual time taken by the Deeds Office to examine the documents lodged by the different conveyancers for a specific transaction is 7 – 14 days. 

NECESSITY OF A CONVEYANCER

In terms of the present legislation, only qualified conveyancers may attend to the transfer of fixed properties and related transactions.  This protects the rights and interest of the public and also safeguards the integrity of the South African Land Registration System, which is universally regarded as one of the best in the world.  Only an attorney can qualify as a conveyancer.

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VAT OR TRANSFER DUTY?

Very often the question arises as to whether the purchaser must pay transfer duty on a particular transaction or whether there is no transfer duty payable as the transaction is in fact a VAT transaction.  This question can arise where the seller is registered for VAT but the purchaser is not or the seller is not registered for VAT and the purchaser is registered for VAT or both parties are registered for VAT or neither party is registered for VAT.  The answer is usually easily determined by looking at the status of the seller except in the case of residential property.  As a general rule, (except in the case of residential property), if the seller is in fact registered for VAT purposes, VAT is payable on the transaction and no transfer duty is payable by the purchaser in the transaction.  If the seller is not registered for VAT purposes, then transfer duty is payable on the transaction by the purchaser.  However in the case of residential property transactions, because of the fact that the rental payable on a lease for a residential property does not attract VAT, the transaction is a transfer duty transaction even if the seller is registered for VAT (except in the case of a developer).  In the case of a developer if the sale relates to a unit or erf in a particular property, the sale should be a VAT transaction as the developer is effectively trading in property.  There are a few technical exceptions to the general rules but the exception to the general rules happen so seldom that it does not serve any purpose in discussing such exemptions in an article of this nature. 

The other question which arises is whether VAT is included in the purchase price or not.  As a general rule in South Africa, any purchase price must be VAT inclusive.  Accordingly, if the transaction is a VAT transaction, then the purchase price will be inclusive of VAT unless the contract specifies that VAT is excluded from the purchase price.  One must therefore be very careful in calculating the purchase price where the seller is a VAT vendor as very often the VAT vendor does not take into account that the selling price of the property includes VAT and the seller is upset when the seller discovers that a portion of the purchase price which the seller has received from the purchaser must be paid to the Receiver of Revenue by way of a VAT payment.  From the purchaser’s point of view, the fact that the purchase price includes VAT and the purchaser does not have to pay transfer duty should mean that the purchaser should be willing to pay a higher price for the property being purchased as effectively the purchaser is getting the amount which the purchaser would have paid as transfer duty as a discount on the purchase price for the property.

If the sale of the property is one which is a VAT transaction and the purchaser is registered for VAT purposes, the purchaser is entitled to claim the VAT which forms part of the purchase price of the property as a VAT input.  This effectively means that the purchaser will get a credit for this amount from the Receiver of Revenue on the purchaser’s VAT when the purchaser submits the purchaser’s next VAT return.  The Receiver of Revenue may conduct a VAT audit on the purchaser before allowing the input particularly if any monies are to be paid by the Receiver of Revenue to the purchaser.  Sometimes the audit does not take place if there is no actual payment of monies from the Receiver of Revenue to the purchaser. 

If the purchaser is a VAT vendor but the seller is not registered for VAT, the purchaser is entitled to claim the transfer duty which the purchaser has paid on the transfer of the property as a VAT input (except of course if the property is a residential property).  Effectively therefore the purchaser will recover the amount of the transfer duty from the Receiver of Revenue.  Again the same will be by way of a claim for a VAT input on the purchaser’s next VAT return and again the Receiver of Revenue may decide to audit the same prior to allowing the claim or paying a refund.  Normally the Receiver of Revenue will not allow the claim unless he has received proof that the transfer has actually taken place and would normally require a copy of the transfer duty receipt as proof that the actual transfer duty was paid.  One should therefore make arrangements with the conveyancing attorneys to expedite the relevant documentation after the transfer has been registered in order that the purchaser can obtain the relevant documentation as soon as possible to support a claim for the return of the transfer duty in the form of a VAT input. 

In the event that the property forms part of a business and the business is sold as a going concern, if both the purchaser and the seller are registered for VAT purposes, then VAT will still be payable but the transaction would be zero rated.  In other words effectively no VAT or transfer duty would be payable on the transaction. To qualify however the assets which are necessary to carry on the enterprise must be disposed of by the seller to the purchaser, the enterprise must be an enterprise as defined in the Act (for practical purposes must be an enterprise where one is obliged to pay VAT on the income) and the enterprise must be an income earning activity on the relevant effective date.  It would be wise in such instance to include a clause along the following lines in the contract for the sale of the business to ensure that the Receiver of Revenue will in fact agree that the VAT in the transaction should be zero rated:-

“1. Both parties hereby warrant that they are registered as vendors in terms of Section 23 of the Value Added Tax Act No. 89 of 1991 ("(the Act").  The parties record that:-

  1. The business together with the assets and the stock-in-trade constitutes an enterprise as the term is defined in the Act, and the supply of the enterprise as contemplated herein is that of a going concern chargeable with value-added tax ("VAT") at zero rate in terms of Section 11 (1)(e) of the Act.
  2. The enterprise shall be an income-earning activity on the effective date, it being recorded that all of the assets which are necessary for the carrying on of such enterprise are hereby simultaneously being disposed of by the Seller to the Purchaser.

2.   In the event of Vat being levied at a rate other than zero, the VAT so payable shall be paid by the Purchaser to the Seller on demand, provided that the Seller furnishes the Purchaser with a VAT invoice as contemplated in the Act to enable the Purchaser to claim an input credit in respect of the VAT so paid.”

It should be emphasized that if one is in doubt one should always first discuss the matter with either an auditor or an attorney before giving advice as to whether the transaction is a VAT transaction or not, as the consequences of giving incorrect advice could be harmful for the parties involved.

The above should be seen as a brief comment on the question of VAT and transfer duty and our interpretation thereof and should not be seen as an extensive guideline.  Please obtain a full legal opinion if you wish to act on any aspect hereof as the guideline is not fully comprehensive.

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NATIONAL CREDIT ACT

INTRODUCTION

The National Credit Act (hereinafter referred to as "the NCA") was passed by Parliament on the 10th of March 2006.  The main provisions of the Act come into effect on the 1st of June 2007. 
The purpose of the Act is to:

  • promote a fair and non-discriminatory market place for access to the consumer credit;
  • regulation of consumer credit and improved standards of consumer information;
  • prohibit certain unfair credit and credit marketing practices;
  • promote responsible credit granting and use;
  • prohibit reckless credit granting;
  • provide for debt re-organization in case of over-indebtedness;
  • to regulate credit information; and
  • establish the National Credit Regulator and the National Consumer Tribunal.

WHO IS AFFECTED?

Anyone dealing in the credit industry be it a credit grantor, a credit grantee or any intermediatery.  The Act has a wide definition for the term "credit agreement" and the Act therefore applies to any party involved in the credit agreement.  A credit agreement is defined in the Act as any agreement where goods or services are purchased and repayable on installments and not on delivery, as well as any extension of money i.e. home loans, personal loans, credit cards, store cards and short term loans.
The Act further classifies the credit agreements into three categories:-

  • Incidental credit agreements;
  • Intermediate agreements;  and
  • Large credit agreements.

A loan over immovable property is considered a large credit agreement, which is our focus in the real estate industry.  The act is applicable to all natural persons, and for the purposes of large credit agreements, juristic persons are excluded. It must be noted that a lease of immovable property has specifically been excluded in terms of this act and this act will therefore not apply to any rental properties.

THE EFFECT OF THE NCA

In terms of this act the onus has been shifted from the consumer, who should not borrow more than they can repay, to the Banks and other credit extenders to fully asses the ability of a person applying for credit to reasonably be able to repay such credit, as the debt falls due.  Should the financial institutions fail to do the necessary checks to ensure that credit is not being extended to persons who would be unable to repay such credit, a magistrate may declare it reckless lending.
The magistrate may then either:

  • declare the agreement unenforceable, meaning the financial institution can not recover the money;
  • suspend the debt for a determined period, during which period no finance charges nor interest may be charged; or
  • restructure the debt i.e. the interest rates and the repayment terms so that the consumer will be in a position to repay same.

The act further prohibits negative marketing which may mean that no consumer may be pre-approved for any bond subject to valuation of a property.  The banks will probably have to send out assessors and establish value in the property prior to granting the mortgage loan.  This will result in a delay in the turnaround-time for bond grants. Agents are therefore advised to extend the period available in their suspensive conditions for the bond grant. This will prevent the deal from expiring due to delays from the banks in performing all the necessary checks on an applicant.

In terms of the NCA, financial institutions have to establish if the consumer, based on the preponderance of available information at the time a determination is made, is or will be able to satisfy in a timely manner all the obligations under the credit agreements to which the consumer is a party, having regard to the consumer's financial means and prospects as indicated by the consumers history of debt repayment.  As there is no specific definition of what percentage of the consumer's monthly income may be utilized towards debt repayment the banks may initially be hesitant to extend credit as freely as in the past.  The result will be more frequent declines on bond applications. However on the bonds that are approved, one should be assured that the consumer will have sufficient financial means to pay the necessary transfer and bond costs to ensure that the transfer will be successfully concluded.

The banks may have an initial delayed turnaround-time on approval of bonds. The bond instructions may therefore enter the conveyancing/transfer process later than usual and may result in a delay of the transfer process.

THE NATIONAL CREDIT REGULATOR

The act has established the National Credit Regulator (hereinafter referred to as “the NCR”).  In terms of the NCA the NCR has supervisory functions over the financial institutions. All credit providers, credit bureaus and debt counselors have to register with the National Credit Regulator. 

The National Credit Regulator will enforce the NCA through:

  • promoting informal resolution of disputes;
  • receiving complaints concerning alleged contraventions of the NCA;
  • monitoring the consumer credit market and industry to ensure that prohibited conduct is prevented or detected and prosecuted and  evaluate and reprimand alleged contraventions of the act;
  • overseeing and ensure the correctness of the contents of the National Credit Register.

In terms of the NCA, all consumer information will now be contained in the National Credit Register. The information drawn on by the financial institutions and relevant financial bureaus will have to be drawn from this credit record.  The credit record will contain information on all credit agreements, suretyships and judgments, past and current, of the consumer. The consumer has a right to petition the NCR to correct any incorrect information based on his or her credit record.  The consumer further has a right of access to his/her credit record at no charge once a year in the month of his/her birth.

THE NATIONAL CONSUMER TRIBUNAL

The act has established a National Consumer Tribunal.  The tribunal will adjudicate a matter in relation to relief sought as provided for in the NCA and any allegations of prohibited conduct and if appropriate, impose a remedy provided for in the NCA. 

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CONSUMER CREDIT POLICY

In terms of the NCA the consumer now has certain rights against credit grantors.  The consumer has a right to:

  • apply for credit;
  • not be discriminated against in granting credit;
  • written reasons from a credit grantor for refusing any credit that was applied for; and
  • receive all necessary documentation when applying for credit, in their official language.

ADVERTISING PRACTICES

The NCA has specific provisions regulating the advertising practices of financial institutions wishing to extend credit.  The emphasis is on full disclosure of all financial charges that would be incurred by such consumer upfront before the consumer enters into such credit agreements.  The consumer is therefore entitled to a statement setting out any and all finance charges that will be incurred by such a consumer on extension of the credit as well as the terms of re-payment.

AMNESTY

In terms of the National Credit Act amnesty will be granted in respect of all defaults (that is bad payment records) listed before the 1st of September 2006 which are for an amount of R499.99 or less.  These amounts will be removed by the 1st of June 2007.  In respect of judgments granted against a person by a Court the following amnesty has been granted:-

  • Judgments listed before 1 September 2006 which are for an amount of R499,99 or less where a person has less than 3 unpaid judgments will be removed by 1 June 2007.
  • Judgments listed before 1 March 2005 which are for an amount of R4 999,99 or less where a person has less than 2 unpaid judgments will be removed by 1 June 2007.
  • Judgments less than R50 000,00 which were paid in full by 1 September 2006 will be removed by 1 June 2007.

We wish to point out that this is a very brief discussion regarding the National Credit Act.  This should not be deemed to be an extensive and fully detailed discussion, and should only be utilized as a guideline.

THE CONSUMER PROTECTION ACT AND TYPICAL PROPERTY TRANSACTIONS

1.            INTRODUCTION

Legislation relating to consumer protection in South Africa has for many years been behind that of other jurisdictions.  There had been no real review of such laws for a lengthy period of time.  As a result of the same it was decided to review all legislation relating to consumers.  This involved reviewing approximately 70 different Acts and considering different manners to ensure that the consumer was protected.  This resulted in the Consumer Protection Act (the "CPA") being signed into law on the 24th of April 2009.  Effectively the Act is divided into two portions.  The initial portion did not affect estate agents and effectively dealt with the establishment of the National Consumer Protection Institution.  The balance of the provisions were meant to come into operation 18 months after the act was signed i.e. on the 24th of October 2010 but instead came into operation on the 1st of April 2011.  These provisions include a "Consumer Bill of Rights" and as a result the CPA will, when the second portion comes into operation, provide   consumers with one of the best protections in the world. 

2.            IN TERMS OF THE ACT, THE MAIN PURPOSES ARE:-

  • To promote a fair, accessible and sustainable marketplace, for consumer products and services by establishing national norms and standards relating to consumer protection;
  • To provide for improved standards of consumer information;
  • To prohibit certain unfair marketing and business practices;
  • To promote responsible consumer behavior;
  • To promote a consistent legislative and enforcement framework relating to consumer transactions and agreements; and
  • To establish a National Consumer Commission.

In the Act it is stated that it was necessary to develop and employ innovative means to:-

a)            fulfil the rights of historically disadvantaged persons and to promote their full participation as consumers;
b)            protect the interests of all consumers, ensure accessible, transparent and efficient redress for consumers who are subjected to abuse or exploitation in the marketplace; and
c)            to give effect to internationally recognised customer rights

Accordingly the law was enacted in order to:-

  1. promote and protect the economic interests of consumers;       
  2. improve access to, and the quality of information that is necessary so that consumers are able to make informed choices according to their individual wishes and needs;             
  3. protect consumers from hazards to their well being and safety;
  4. develop effective means of redress for consumers;
  5. promote and provide for consumer education, including education concerning the social and economic effects of consumer choices;
  6. facilitate the freedom of consumers to associate and form groups to advocate and promote their common interests; and
  7. promote consumer participation in decision-making processes concerning the marketplace and the interests of consumers

3.            SCOPE OF THE CPA

In essence the Act will regulate:-

  • every transaction between a supplier and a consumer involving the supply of goods and/or services in the ordinary course of business within the Republic of South Africa; and
  • the promotion of such goods and services that could lead to a transaction being entered into; and
  • the goods and services themselves after the transaction is completed. 

Certain juristic persons with turnovers or asset value over certain threshold will fall outside the protection of CPA.  Thus where an estate agent acts on behalf of a large corporation such as Pick 'n Pay, the CPA will not apply.

4.            WHO ARE SUPPLIERS AND WHO ARE CONSUMERS?

A supplier is defined in the CPA as "a person who markets any goods or services"

a)     in relation to goods, includes sell, rent, exchange and hire in the ordinary course of business for consideration; or
b)     in relation to services, means to sell the services, or to perform or cause them to be performed or provided, or to grant access to any premises, event, activity or facility in the ordinary course of business for consideration;

Because the definition relates to goods or services rendered or sold "in the ordinary course of business for consideration" or in relation to services, provided in the ordinary course of business for consideration, the CPA applies to those transactions which are of a regular nature and excludes once off transactions.

A consumer is defined in the CPA to include (amongst other things)

a)            a person to whom goods or services are marketed in the ordinary course of the supplier's businesses;
b)            a person who has entered into a transaction with a supplier in the ordinary course of the supplier's business.

5.            PROTECTION OF THE RIGHTS OF CONSUMER'S BILL OF RIGHTS

Chapter 2 of the CPA deals with the various rights which are granted to consumers when dealing with suppliers.

  • Part A confers the right to equality in the consumer market place.  A consumer has the right not to be unfairly excluded from access to goods or services and may not be charged differentiated rates on any of the discriminatory grounds.       
  • Part B confers the right to privacy.  A consumer has the right to inform the marketer of goods or services that he no longer wants to receive marketing communications.  Any further approaches from the marketer will be a transgression of the CPA.  The Act further provides for the establishment of a Central Registry where consumers can indicate their preference in this regard.  Further provisions will regulate the times when direct marketers may contact consumers at their homes.
  • Part C confers the right to choose.  Specific rights are conferred on the consumer to allow him to "choose" his supplier and "bundling" is regulated.  In other words, where Bank Z gives you finance with which to purchase a vehicle, it may not make it a proviso of the loan that the vehicle must also be insured with Insurer Y, unless specific criteria are met.

The Act furthermore provides that any fixed-term agreement may be cancelled by giving 20 days' notice and also provides for a five day cooling-off period that applies to any transaction entered into as a result of direct marketing by a supplier.

  • Part D confers the right to disclosure of information.  Here it is provided that a consumer has the right to receive information in plain and understandable language and that the price of goods and services must be sufficiently disclosed.  The supplier must also advise the consumer if the goods offered are reconditioned. 
  • Part E confers the right to fair and responsible marketing.  Suppliers must comply with certain general standards for marketing.  Loyalty programmes are controlled by separate regulations and must allow consumers a defined level of "access" to their rewards.  Promotional competitions are also regulated.
  • Part F confers the right to fair and honest dealings. The Act penalizes what is defined as "unconscionable conduct", which includes any activity that involves force, coercion or undue influence by a supplier during the promotion, execution or enforcement of a contract.  The Act also outlaws pyramid schemes, chain letters and the like.
  • Part G confers the right to fair, just and reasonable terms and conditions.  The Act disallows agreements that:-

(i)  are too one-sided to be in the consumer's best interest;

  • adversely impact on the consumer;
  • involve unfair or unreasonable waiving of rights;
  • that contains unjust terms or charge unreasonable prices.  Furthermore, the waiver of any rights conferred on a consumer in terms of the CPA is prohibited as is the indemnifying of a supplier for gross negligence.
  • Part H confers the right to fair value, good quality and safety.  Consumers have the right to demand quality service and goods that are safe and fit for the purpose for which they have been bought.

6.            DOES THE CPA APPLY TO IMMOVABLE PROPERTY?

From an estate agents point of view, the vital question is whether the CPA applies to immovable property.

The definition of goods in the CPA is defined so as to include:-

                "…………
                (d)          a legal interest in land or any other immovable property…………"

It is therefore clear that land falls under the definition of goods in the CPA.

It is clear from the definition of a "consumer" referred to above, that a consumer is a person to whom goods or services are marketed in the normal course of the supplier's business or a person who has entered into a transaction with a supplier in the normal course of the supplier's business.

It is therefore clear that a transaction includes any transaction in terms of which property is sold from a supplier to a consumer.  If however, the property is not sold by a supplier or is not sold to a consumer, then by definition the CPA will not apply.  By virtue of the definition of a supplier set out above, it would therefore appear (although some commentators argue differently) that the CPA will not apply to the once off sale of a property from a seller to a purchaser and will therefore only apply to the sale of properties by speculators and property developers.

7.            HOW DOES THE ACT APPLY TO ESTATE AGENTS?

It is clear that estate agents fall under the definition of a supplier by virtue of the fact that estate agents are persons who market services.  As estate agents do this on a regular basis in the normal course of their business, the provisions of the CPA clearly apply to estate agents.  Thus an estate agent must ensure that he or she does not fall foul of the provisions of the CPA.  As a general rule if an estate agent, has complied with the code of conduct of the Estate Agency Affairs Board, the estate agent will almost by definition have complied with most of their provisions of the CPA.

Estate agents will however have to ensure that their mandate agreement and their contracts with members of the public do not contravene the provisions of the CPA and in particular do not contravene the various rights referred to in paragraph 5 above.  To avoid unnecessary printing, one could initially amend the mandates by way of an addendum to the mandate which will provide that certain clauses are deleted and are to be replaced with other clauses.  Estate agents will also have to carefully check to see whether the seller of the immovable property is in fact a person who falls under the CPA or not.  If so, a different contract will have to be utilized for such sales.  Accordingly the Estate agents will have to ensure that in each of their contracts with the public (not the contracts between a once off seller to a once off purchaser) the following provisions are covered:-

  • The agreement must be in plain and understandable language;
  • The agreement must contain fair, reasonable and just terms.  A supplier may for example not offer to supply, services or supply goods at a price that is unfair, unreasonable or unjust or on terms that are unfair unreasonable or unjust.  This includes the consequence that should a consumer apply to Court with the allegation that certain terms of his agreement with the supplier are unfair or unjust, the Court may restore the property to the consumer or order compensation to the consumer for losses and expenses relating to the agreement;
  • The consumer has the right to receive express notice of any term in an agreement which limits the risk or liability of the provider, or of any term which constitutes an assumption of risk or liability by the consumer;
  • The consumer has a cooling-off right which allows him to cancel the agreement within five business days after contracting;            

        e)            The consumer has the right to return defective goods, which right does away with the working of the voetstoots clause.

The main contracts which will probably be effected therefore will be the estate agent's mandate, contracts for the sale of properties by speculators, contracts of the sale of properties by property developers and rental agreements. 
For the reasons set out above the once off sale (and possibly the once off rental) of a property by a person who is not trading in property or whose business is not the rental of property, will not fall under the CPA and accordingly the Estate agents' contracts in this regards will not have to be amended.  However, most estate agents' contracts include a commission clause which (strictly speaking is not an agreement between the purchaser and the seller) and this clause will have to no doubt be amended in many cases to ensure that it does not fall foul of the CPA.

8.            THE HOT ISSUE – DOES THE VOETSTOOTS CLAUSE STILL APPLY?

In terms of Section 55 of the CPA, every consumer has the right to receive goods that are:-

a)    reasonably suitable for the purpose for which they are generally intended;
        b)    of good quality, in good working order and free of any defects;
        c)    will be usable and durable for a reasonable period of time, having regard to the use to which they would normally be put and to all the surrounding circumstances of their supply;
        d)    comply with the applicable standards set out in the Standard's Act (Act 29 of 1993) or any other public regulation.

In addition to the rights set out above, if the consumer has specifically informed the supplier of the particular purpose for which the consumer wishes to acquire any goods or the use to which the consumer will apply those goods and the supplier offers to supply such goods or acts in a manner consistent with the knowlegeable about the use of those goods, the consumer has the right to expect that the goods are reasonably suitable for the purpose that the consumer has indicated. 

This would imply that the voetstoots clause would be excluded where the CPA applies.  As set out above the CPA will not apply to once off transactions between a purchaser and a seller and accordingly, the voetstoots clause will remain in force and effect in such transactions.  However property speculators and property developers will no longer be entitled to rely upon the voetstoots clause or other clauses which unfairly limit the rights of consumers to receive goods which are suitable for the purposes for which they are intended, of good quality and are in good working order and free of defects.

In terms of Section 56 of the CPA, there is an implied clause in such contract covered by the CPA that the producer or importer, the distributor and the retailer each warrant that the goods comply with the requirements and standards referred to in Section 55 (the requirements set out above).  Accordingly within six months after the delivery of any goods to a consumer, the consumer may return the goods to the supplier, without penalty and at the supplier's risk and expense, if the goods fail to satisfy the requirements and standards contemplated in Section 55 and the supplier must at the discretion of the consumer either repair or replace the failed, unsafe or defective goods or refund to the consumer the price paid by the consumer for such goods.

9.            EXCLUSION

It is interesting to know that Section 45 specifically states that any sale conducted by way of an auction where goods have been put up for sale by auction and the sale by auction is completed when the auctioneer announces it's completion by the fall of the hammer, or any other customary manner, and until that announcement is made, a bid may not be retracted and on condition that the sale by auction was subject to a reserved or upset price then this auction which will result in the sale of an immovable property will be excluded from the workings of the auctioneer.

10.          ANALYSIS OF NORMAL SALE AGREEMENTS:-

The contract between the seller and the purchaser (if it is a once off sale and the seller is not a property developer or speculator) will not fall under the CPA.  Although one may argue that the agent is acting on behalf of the seller, the agent is in fact an agent in the true sense and the contract is therefore the contract which is concluded between the principal (the seller) and the purchaser.  However any clauses which relate to the commission of an estate agent will have to be carefully scrutinized to ensure that they do not contravene the CPA.  If the sale is one from a property developer or a speculator or any body trading in property, the CPA will apply.  Similarly all contracts between the estate agent and the seller of a property or lessor of a property will have to comply with the CPA.

In terms of Section 16 of the CPA, a consumer may rescind a contract resulting from any direct marketing without providing any reasons and without incurring any penalty provided that it gives notice to the supplier within 5 business days after the transaction was concluded.   This means that if the mandate was obtained as a result of direct marketing the so called cooling-off clause in terms of the CPA will apply to the transaction. 

In addition contracts of the estate agent in regard to the mandate and other agreements which the estate agent has with a seller or lessor must comply with the provisions referred to in paragraph 6.

11.          MARKETING METHODS

On the basis that an agent will market the seller's house to the general public on instructions of the seller, the agent, will be a "supplier" vis-à-vis any potential purchaser and the agent's marketing practices will have to comply with the provisions of the CPA. 

The marketing methods will therefore have to comply with the various chapters in the CPA keeping in mind the following:-

  • The consumer is entitled to equality and privacy;
  • The right to disclosure of information;
  • The right to fair and responsible marketing;
  • The right to honest dealings.

Section 40 of the CPA deals with unconscionable conduct.  The CPA clearly states that a supplier or an agent of the supplier may not use:-

  • physical force against the consumer;
  • coercion, use undue influence;
  • pressure;
  • duress or harass;
  • unfair tactics relating to any of the marketing of the goods or services or the supplier of goods or services whether it is in the negotiation, conclusion or execution stage of an agreement.

Section 41 deals with false, misleading and deceptive representations and states that no supplier or agent of a supplier by words or conduct may:-

  • directly or indirectly express or imply a false, misleading or deceptive representation concerning a material fact to a consumer;
  • use exaggeration, innuendo or ambiguity as to a material fact, or fail to disclose a material fact if that failure amounts to a deception;
  • fail to correct an apparent misapprehension on the part of a consumer, amounting to a false, misleading or deceptive representation.

Section 41 further deals with immovable property and it is stated that in relation to any land or other immovable property no statement may be made as to characteristics that the immovable property does not have or that the immovable property may be lawfully used or is capable of being used for a purpose that it is in fact unlawful or impractical or that the immovable has or is proximate to any facilities, amenities or natural features that it does not have, or that are not available or proximate to it.

12.          BAIT MARKETING
Section 30 specifically states that the supplier may not advertise any particular goods or services as being available at a specific price in a manner that may result in a consumer being mislead or deceived in any respect relating to the actual availability of those goods or services from the supplier at that advertised price.

Section 36 deals with promotional competitions and it must be noted that an agent may not advise a person that he has participated in a competition and won such competition when in fact he has either not won the competition or no competition has in fact been conducted.

13.          WHAT MAY A CONSUMER DO IF HIS/HER RIGHTS ARE VIOLATED?
A consumer may approach A Court, the Tribunal or the Commission alleging that his/her consumer rights have either been infringed, impaired or threatened, or that prohibited conduct has occurred or is occurring.   Any Tribunal or Court must promote the spirit and purpose of the CPA, make appropriate orders to give practical effect to the consumer's right of access to redress and promote any orders that better advance, protect, promote and assure the realization by the consumers of their rights in terms of the CPA.  The penalties for breaching the CPA are very severe.  One can be charged an administrative fine of up to 10% of one's annual turnover or an administrative fine of R1-million (which ever is the greater).

14.          CONCLUSION
What is clear is that the "consumer is king" and that the act although it has a very wide application is generally aimed at business and individual type transactions between two private individuals will not be covered by the CPA.  However, where a seller or purchaser employs the services of an estate agent the agent then falls within the definition of a supplier for purposes of the CPA because he will be marketing the property and he will be executing his duties as agreed with the seller in terms of the mandate.

We have to point out that with any new Act that comes into effect there are may unanswered questions and grey areas which will have to be decided by the Court.  If one thinks of just the National Credit Act and the various litigation that has arisen as a result of the Act to give finality on certain issues we have now doubt that the same will apply to the CPA.

The above should be seen as a brief comment on the Consumer Protection Act and our interpretation thereof and should not be seen as an extensive guideline.  Please obtain a full legal opinion if you wish to act on any aspect hereof as the guideline is not fully comprehensive.

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BRIEF GUIDE TO CAPITAL GAINS TAX

This brief guide is intended to outline in very broad and brief terms, the key principles that form part of Capital Gains Tax legislation in South Africa relating to immovable property

  • When is Capital Gains Tax (CGT) chargeable and payable?

The occurrence that causes any CGT liability is the disposal of an asset, for instance a residential property. Unless such a disposal occurs, no gain or loss arises.

  • What are affected capital assets?

Affected capital assets are considered to be property of any kind, including assets that are movable or immovable, tangible or intangible, excluding trading stock and mining assets qualifying for an income tax deduction as capital expenditure.

  • Will the sale of my primary residence be subject to CGT?

A primary residence exclusion of a gain of up to R2 000 000.00 and no Capital Gains Tax being charged if the property is sold for the sum of R2 000 000.00 or less, means that most capital gains on the sale of a home will not be subject to CGT.

  • What is a primary residence?

It must be a structure, including a boat, caravan or mobile home, which is used as a place of residence by a natural person.  A natural person or special trust must own an interest in the residence, and the natural person with an interest in the residence, beneficiary of the special trust, or spouse of that person or beneficiary must ordinarily reside in the home and must use it mainly for domestic purposes as his or her ordinary residence.

Where the primary residence is disposed of together with the land on which it is situated (including unconsolidated adjacent land) the one million five hundred thousand exclusion will apply to land:

  • To the extent that it does not exceed two hectares;
  • That it is used mainly for domestic and private purposes together with the residence, and is disposed of at the same time and to the same person as the residence.
    • Is a primary residence exclusion an unlimited exclusion?

        The exclusion will not apply to any capital gain or loss in excess of one million five hundred thousand rand.  The exclusion will further only apply in respect of two hectares of property used for domestic or private purposes.  The exclusion furthermore will not apply to any capital gain or loss in respect of the period on or after the valuation date when the person was not ordinarily resident in the primary residence.

  • Will it apply to a residence held through a company or trust?

        No, the owner is not a natural person.

  • How are capital gains / losses determined?

        A capital gain or loss is the difference between the base cost of an affected asset and the consideration realised or deemed to be realised upon the disposal or deemed disposal of that same asset.

  • What is base cost?

        Base cost means the cost of an asset which is deducted from any proceeds upon disposal, to determine whether a capital gain or loss has been realised.  Base cost includes those costs actually incurred in acquiring, enhancing or disposing of a capital asset that are now allowable as a deduction from income.  The following are included in the base cost of an asset:-

  • Acquisition costs
  • Incidental costs of acquisition and disposal
  • Capital costs of maintaining title or rights to an asset
  • Costs of improvement or enhancement
  • Costs of ownership of assets used exclusively for business purposes, listed shares and units in a unit trust scheme
  • Valuations

The extended period in which to obtain valuations for the purposes of capital gains tax finally expired on the 30th of September 2004.  As a result anybody who is the owner of property which was acquired after the 1st of October 2001 will no longer be entitled to use the valuation method for capital gains tax if the property had not been valued prior to the 30th of September 2004.  A person (natural or otherwise) who was in fact the owner of immovable property as at the 1st of October 2001 and who obtained a valuation of such property prior to the 30th of September 2004 may still use the valuation method for capital gains tax purposes.  However such party must submit the valuation for the property in the tax return for the year in which the property is sold.  Failure to do so could result in the Receiver of Revenue not being prepared to accept the valuation method.

A person who purchased immovable property after the 1st of October 2001 may use the method referred to as the normal method referred to in A below for the purposes of calculating capital gains tax.  A person who purchased the property prior to the 1st of October 2001 and obtained a valid valuation before the 30th of September 2004 may use any one of the 3 methods referred to below.  A person who purchased a property before the 1st of October 2001 but did not obtain a valid valuation before the 30th of September 2004 can use either method A, B or C below.

A     For properties acquired at any time (i.e. before or after the 1st of October 2001):-

The normal method
The capital gains tax is calculated on the difference between the price for which the property is eventually sold and the purchase price which was initially paid for the property.  In addition transfer costs, estate agent's commission (on the sale of the property) and the documented costs of any capital improvements to the property can be deducted from the capital gain.  It is important to note that capital improvements refer to items which increase the value of the property and do not constitute maintenance of the property.  This would include things such as adding an extra bedroom to the house or installing a swimming pool.  It would not include costs of repainting the property, repairing the roof or any other items which are treated as expenditure for income tax purposes.  Thus the interest on the bond, rates and taxes, charges for water and electricity and similar charges cannot be deducted for the purposes of calculating the capital gains profit.

B     Only for properties purchased prior to the 1st of October 2001:-

Time apportionment method
The capital gain is calculated as in (1) above.  The net capital gain is then pro rated according to the number of years for which the property was held after the 1st of October 2001 in relation to the number of years in respect of which the property was owned prior to the 1st of October 2001 with a maximum of 20 years prior to the 1st of October 2001 being taking into account.  Thus for example if the property was purchased 10 years before the 1st of October 2001 and sold 5 years after the 1st of October 2001 only one third of the resultant capital gain would be added to the tax payers tax i.e. only 5 years of the 15 years will be taken into account as the property was owned for 15 years but only 5 of those years were after the 1st of October 2001.

        The 80/20 principal
        In terms of the same, 20% of the capital gain is effectively exempted from capital gains tax.  Accordingly 20% of the proceeds is considered as the value of the property as at the 1st of October 2001 and the capital gains tax is then calculated on the remaining 80%.

C     For properties purchased prior to the 1st of October 2001 and a valid valuation was obtained before the 30th of September 2004

        The valuation method
        Capital gains tax is calculated on the difference between the price for which the property is eventually sold and the valid valuation of the property as at the 1st of October 2001.  In addition estate agent's commission (on the sale of the property) and the documented costs of any capital improvements to the property affected after the 1st of October 2001 can be deducted from the capital gain.  Capital improvements prior to the 1st of October 2001 cannot be deducted as they have already been taken into account in the valuation of the property as at the 1st of October 2001.

Any tax payer who owned the immovable property before the 1st of October 2001 and sold the property subsequent to the 1st of October 2001 is entitled to elect which of the four methods referred to above such party wishes to utilize (assuming of course that such party obtained a valid valuation prior to the 30th of September 2004).  If the party did not obtain such valid valuation prior to the 30th of September 2004, then the party can only use methods 1, 2 and 3 referred to above.  It is advisable for a taxpayer to work out the net effect in respect of each of the methods before electing which of the methods to utilize. 

  • Is there any relief on the inclusion of a capital gain in taxable income?

The following inclusion rates are to be applied to nett capital gains:-

  • Legal persons (including companies, close corporations and trusts) – 66.67%
  • Natural persons (individuals and special trusts) – 33.33%

In other words, a company will only include 66.67% of the nett capital gain in taxable income (33.33% is exempt from tax) and an individual will only include 33.33% of the nett capital gain in taxable income (66.67% is exempt from tax).

The table below outlines effective tax rates in respect of CGT:-

The above should be seen as a brief comment and our interpretation thereof and should not be seen as an extensive guideline.  Please obtain a full legal opinion if you wish to act on any aspect hereof as the guideline is not fully comprehensive.

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SARS REQUIREMENTS FOR TRANSFER DUTY

On the 14th of April 2005 SARS issued a statement entitled SARS LAUNCHES A NEW ELECTRONIC TRANSFER DUTY SYSTEM.  According to SARS this new transfer duty system will improve client service and will ensure that all parties comply with South African tax law.   New transfer duty forms will be used for all transactions concluded after the 1st of May 2005.   Effectively SARS will only issue the relevant transfer duty receipt on condition that all parties concerned are not only registered but that all their tax returns and taxes are up to date. 

In essence now, SARS will use all property transactions in South Africa to monitor everyone’s tax status, not only in relation to the property purchased or sold but in relation to their tax status in general. 

As such, the following additional information will now have to be obtained from all parties concerned:-

  • VAT registration numbers of both Purchaser or Seller (if applicable)
  • Details of directors, shareholders, members etc (if either party is a legal entity)
  • Details of the original purchase price paid by the Seller and the actual date of acquisition of the property
  • Method of payment of the purchase price by the Purchaser i.e. details of bond grant and institution granting bond
  • Income Tax numbers of both Seller and Purchaser
  • VAT registration number of estate agency (if applicable)

Regrettably it now takes a few days longer to obtain a transfer duty receipt from SARS due to the fact that they now proceed to check all details and the tax status of all parties concerned before SARS will issue the necessary transfer duty receipt.  This places an additional burden on conveyancers and could potentially delay transfers where for instance either the Seller or the Purchaser is deemed to have outstanding tax issues with SARS.  These outstanding tax issues will first have to be resolved and only thereafter will SARS provide the necessary transfer duty receipt.

SOLUTION

As transferring attorneys we, without delay and immediately after obtaining payment of the transfer costs which will include the transfer duty, approach SARS with a request to provide the necessary transfer duty receipt.  If there is a problem in regard to the tax status of either party, this will be detected at an early stage which will then provide the relevant party the necessary opportunity to approach SARS and correct any outstanding issues.

Estates agents should at an early stage advise their sellers and buyers of the above and inform them that should they not be tax compliant the registration process will be delayed due to the fact that the Receiver of Revenue will refuse to issue the necessary transfer duty receipt.  This will give both parties ample opportunity to resolve any outstanding issues with SARS.  We suggest you add the following clause in your agreement:-

“As a result of the South African Revenue Services (SARS) doing risk analysis on both the transferor and the transferee on all property transactions both the Seller and the Purchaser warrant to each other and the agent that all tax issues (whether personal or otherwise) including but not limited to tax returns and tax payments are current and up to date.  The defaulting party will be liable for all costs incurred and damages suffered by the aggrieved party as a result of a breach of this warranty.    The aggrieved party shall also be entitled to place the defaulting party on terms and thereafter cancel the agreement if this warranty is breached.  These remedies are in addition to all rights which the parties have in terms of this agreement or in Law.”

Agents need not concern themselves with completing TD1 – TD7 forms as it is our responsibility to complete the same and obtain the necessary information.         

The above should be seen as a brief comment and our interpretation thereof and should not be seen as an extensive guideline.  Please obtain a full legal opinion if you wish to act on any aspect hereof as the guideline is not fully comprehensive.

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