Page 615 - Juta's Indirect Tax

IN 22 (3) TRANSFER DUTY ACT IN 22 (3)
Example 4 – Public school qualifying as a statutory body which has as its sole or principal object the carrying on of a PBA
Facts:
Meadows Primary School is a public school as de ned in the South African Schools Act, 1996, and is registered as such by the Western Cape Education Department. The school does not have a formal letter from the TEU con rming exemption under section 10(1)(cA)(i). It has, however, provided con rmation from the relevant Education Department that it is registered as a public school. The school has acquired a vacant stand to be developed as a sports ground for its sole use in promoting its sporting activities, which form an integral part of the provision of education to its learners. A declaration has been submitted for the acquisition of the property (see 5).
Result:
The vacant stand acquired will qualify for exemption from the payment of transfer duty since the following requirements are met:
• The school is registered as a public school and has provided the relevant con rmation from the Education
Department. It may therefore be accepted that the school quali es for exemption under section 10(1)(cA)(i).
• The school provides necessary and useful services to the State and members of the general public (see 4.2.2) and its
sole or principal object is the carrying on of PBA 4(a).
• The whole of the vacant stand will be used to conduct the PBA.
4.3 Meaning of ‘substantially the whole’
In order to qualify for exemption from the payment of transfer duty under section 9(1)(c) of the Transfer Duty Act, the whole property, or substantially the whole of the property acquired by a PBO or statutory body must be used for purposes of carrying on a PBA. The concept ‘substantially the whole’ was introduced into the Act to ensure that the sole or principal object of a PBO remains the carrying on of PBAs, while at the same time allowing certain parameters within which the PBO can carry on its trading activities.* Since PBOs effectively use assets to carry on PBAs as well as trading activities, the legislation dealing with transfer duty was also amended to give effect to the concept of ‘substantially the whole’. ‘Substantially the whole’† is regarded by SARS to mean 90% or more. However, in order to overcome certain practical dif culties SARS will accept a percentage of not less than 85% for PBAs. If this percentage at any time in the future becomes less than 85%, transfer duty will become payable (see 4.4).
The percentage must be determined using a method appropriate to the circumstances. It may therefore be calculated on the use of the property based on time (see Example 5) or surface area (see Example 6). Any portion of the property not speci cally used for PBAs or other purposes, must be excluded from the calculation.
Example 5 – Determination of ‘substantially the whole’ based on time usage
Facts:
Sunrise Church is a PBO which conducts PBA 5(a). On 1 March 2010 the church acquired a manse for occupation by a second resident minister appointed to focus on the youth ministry. The minister’s term of of ce ended on 31 August 2014 and in view of the decline in the number of young members of the congregation, it was decided not to ll the vacant position. The manse was let to a third party from 1 September 2014 to 28 February 2015 and sold on 1 March 2015.
Result:
Initial acquisition
The acquisition of the manse on 1 March 2010 for the second resident minister quali es for the exemption from the payment of transfer duty because –
• the church is a PBO;
• the church carries on a PBA; and
• the whole of the manse is occupied by the second resident minister employed by the church and therefore the manse is used to carry on the PBA.
Subsequent use up to the date of disposal
For the period 1 September 2014 to 28 February 2015 the manse was used for purposes other than carrying on the PBA. During the period 1 March 2010 to 28 February 2015 the manse was used to carry on a PBA for 54 months and let for six months. PBA usage therefore amounts to 90% (54 months / 60 months × 100) from the date of acquisition until the date of disposal. This percentage exceeds the minimum acceptable percentage of 85%. The PBO has therefore used substantially the whole of the manse in carrying on its PBA.
Example 6 – Determination of ‘substantially the whole’ based on area usage
Facts:
Caring Baby Centre, a PBO that is carrying on PBA 1(a), acquired a residence for the purposes of caring for abandoned babies. The centre con rmed that it will use only a portion of the residence for its PBA and will let the remaining rooms to a third party at a market-related rental. The area of the residence is 420 m2 of which 360 m2 will be used for its PBA.
* Section 10(1)(cN).
† See Binding General Ruling (Income Tax): No. 20 dated 10 December 2013 ‘Interpretation of the Expression ‘Substantially the Whole’.
Juta’s IndIrect tax 2016 607