Page 616 - Juta's Indirect Tax

IN 22 (3) TRANSFER DUTY ACT IN 22 (3) Con rmation is submitted that the area of the residence to be let is 60 m2 and that this area will not be increased in
the future.
Result:
The area the PBO will use for its PBA in relation to the whole residence is taken into account to determine whether substantially the whole of the residence will be used for purposes of carrying on a PBA. The area to be used for the PBA in relation to the whole residence is 360 m2 / 420 m2 × 100 = 85,7%. This percentage exceeds the minimum acceptable percentage of 85%. The PBO will qualify for the exemption from the payment of transfer duty for the acquisition of the residence under section 9(1)(c) of the Transfer Duty Act since substantially the whole of the residence is used to carry on a PBA.
4.4 Non-compliance
If at any time subsequent to the acquisition of property that has quali ed for the exemption under section 9(1)(c) of the Transfer Duty Act the whole or substantially the whole of the property is used for a purpose other than for carrying on any PBA, transfer duty becomes payable. The date the property is used for a purpose other than for the carrying on of the PBA is deemed under the proviso to section 9(1)(c) of the Transfer Duty Act to be the date of acquisition for the purposes of section 3(1) of the Transfer Duty Act (by whom, when and to whom duty payable) and section 4 of the Transfer Duty Act (penalty and interest on late payment of duty). The value on which transfer duty is payable is, however, determined under section 2 of the Transfer Duty Act and is not affected by the proviso. It follows that transfer duty will be determined on the original value of the property on the actual date of acquisition, payable at the rate applicable at the deemed date of acquisition. Should the duty not be paid within six months from the deemed date of acquisition, a penalty* or interest† of 10% a year for each completed month is payable, calculated from the deemed date of acquisition up to the date that the tax is paid.‡
Example 7 – Transfer duty consequences as a result of subsequent noncompliance with the conditions for exemption
Facts:
Animal Safe Haven, a PBO, acquired residential property ( rst property) for R750 000 on 18 December 2009 for the purpose of providing a shelter for abandoned and ill-treated animals. It submitted con rmation to SARS of its status as an approved PBO together with a declaration that the whole of the property would be used for the carrying on of PBA 7(b). On 27 May 2014 the haven acquired a second property which provided larger accommodation facilities to enable it to better carry on its PBA. As with the rst property it submitted con rmation of its status as PBO together with a declaration that the whole of the second property would be used for the carrying on of PBA 7(b). As from 1 June 2014, the rst property was let for commercial purposes and was therefore no longer used in carrying on its PBA.
Result:
Acquisition of rst property
The rst property quali ed for the exemption from the payment of transfer duty because at the time of acquisition the haven –
• submitted con rmation that it is a PBO; and
• con rmed that the whole of the property will be used to carry on PBA 7(b).
Subsequent change in use
On 1 June 2014 the whole property was used for the purpose other than the carrying on of a PBA. Transfer duty is therefore payable on the value of the property at the date of acquisition which is R750 000 at the rate applicable on 1 June 2014. Unless the PBO pays the transfer duty within six months from the date the property is rst used for such other purposes, namely, 1 June 2014, interest will become payable. Interest is calculated at the rate of 10% a year for each completed month that the transfer duty remains unpaid, calculated from the date of acquisition up to the date that the tax is paid.
Acquisition of second property
No transfer duty is payable at the time of the acquisition of the second property because the required con rmation of PBO status and intended usage was submitted to SARS.
4.5 Section 9(1A) of the Transfer Duty Act
In order to qualify for the exemption from the payment of transfer duty under section 9(1A) of the Transfer Duty Act, the organisation transferring the property must –
• be a PBO; and
• transfer the property to any other entity controlled by that PBO.
The transfer and registration of property from a PBO to a separate entity that is taxable for income tax purposes may qualify for the exemption from the payment of transfer duty provided the transferee is controlled by the PBO. This ‘controlled by’ requirement will be met if the transferee is –
• a company of which all the shares are held by a PBO (no shares may be held by any other person);
• a trust, the sole bene ciary of which is a PBO; or
• an association of persons or a non-pro t company of which the sole member is a PBO.
* Section 4(1) of the Transfer Duty Act which is applicable to any transaction entered into before 1 March 2005.
† Section 4(1A) of the Transfer Duty Act which is applicable to any transaction entered into on or after 1 March 2005. ‡ See Transfer Duty Guide in paragraph 9.4.
608 Juta’s IndIrect tax 2016