TRANSFER DUTY E-FILING SYSTEM - Effect of the latest amendments
Effective from this month (30 November 2012), a new system is being introduced by The South African Revenue Services (SARS) for the submission / processing of Transfer Duty applications.
The new Transfer Duty E-filing system, an enhanced version of the system implemented in 2011, now requires the transferring attorney to submit not only the tax numbers of the Buyer and Seller, but also that of any Estate Agent involved. This enables SARS to verify that the tax affairs of all parties involved – including the Estate Agency and the Agent personally – are in order.
The tax authority has for some time now been checking behind the scenes to ensure that Sellers have declared all income, filed their tax returns and paid any and all tax amounts owing. In past instances SARS has delayed the issue of the transfer duty receipts required for transfers until outstanding tax issues have been addressed. SARS furthermore has the power to instruct the Conveyancer to withhold funds from the proceeds of the sale and pay it over to SARS on registration of the Transfer unless the Seller contacts them to make the necessary arrangements.
It now seems that the same could hold true for Estate Agents if they have outstanding returns or taxes. The Conveyancer could be instructed to make payment to SARS from the Estate Agent’s commission. It is important to note that the new Transfer Duty forms do make provision for the split in commission between Agents in respect of shared deals but not provision for the split between the Estate Agency and the Agent. This could lead to SARS having an inflated view of the income earned by an Agent. SARS has advised that it is up to the Agent to keep detailed records of all splits and properly account to SARS in their Annual Tax Return.
It is thus imperative that every agent that earns a portion of the commission declares that revenue to SARS, which income becomes taxable, as SARS will keep a watchful eye on the trail of commission earned.
This is a good reason (if another one is required) for South African property Sellers to deal only with reputable Real Estate Agencies and Estate Agents. It would also probably be advisable for the Agencies to update their standard Sale Agreements to include the Agents personal Income Tax Numbers as a matter of course.
Similarly, SARS will request the Conveyancer to advise the Purchaser to contact SARS to address any outstanding tax issues. Red flags would be if the Purchaser is buying a property that would require an income higher than what he has declared in his Annual Tax Return. SARS will now enquire from the Conveyancer how a Purchaser can afford to acquire and sustain a property on his declared income.
SARS insists that they do not have the power to stop a transaction and that these processes will not delay the Transfer process – but in practise delays are likely.
One notable change in the new system is that all information pertaining to a Conveyancing transaction has to be submitted to SARS before signature of the transfer documents by the parties. The documents for signature by the Buyer and Seller will not be issued by SARS unless all information is captured and the relevant supporting documentation, such as Estate Agent Valuations, Deeds of Sale, Divorce Orders, Estate Documents etc. is uploaded onto the e-filing system. The Conveyancer is accordingly dependant on the Seller, Purchaser and Agent’s co-operation to furnish the necessary documents as soon as possible to expedite the drafting and signing of documents.
This new system has been running in test phase for approximately 5 months already with the cut-off date for the mandatory switch over having been pushed back on numerous occasions as on-going teething problems are being experienced.
The E-filing system compares the identity number of the parties against their respective income tax reference numbers. It could happen that a 'conflict' arises between the information captured on SARS's records and the true position.
For Example: Your Identity Number was issued in 1980 and is 631105 4231 00 4. In 1985 you were issued with Income Tax Number 0062812456. In 1996 you get a new ID Book and your new number is 631105 4231 082. This creates a problem when submitting the Transfer Duty Application and SARS will send an error message that the Identity Number does not correlate with the Income Tax Number for that individual. The individual will have to go to their nearest SARS office to update his personal information before the Conveyancer will be able to proceed with the drafting of documents. In a situation where the individual is out of the country – delays are inevitable.
Boqwana Loon & Connellan Inc.