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Un-named nominees

12 February 2004

After outlining the way some property dealers avoid transfer duty or value-added tax through the mischievous use of nominee purchases he submits that the SARS strategy as applied to s16 will probably fail. This is because s16 appears to apply only in the context of agency agreements. In the context of nominee purchasers s16 will only apply insofar as the purchaser of the property is the agent and the ultimate nominee is his principal. Since in common law it is an indefatigable rule that the principal must exist when the agent concludes the juristic act the dealer cannot be said to be an agent if the ultimate nominee is found only after the sale agreement happens.

The writer suggests that Sars seems to have confused agency agreements with nomination agreements. The question is asked: "What is a nominee clause in property sale agreements and how does it prevent transfer duty being levied on the original purchaser?"

One view holds that it is a form of resolutive condition which and that transfer duty is levied on the right to obtain ownership of the property. Logically this would mean that transfer duty is leviable on both the original agreement of sale and the transaction resulting from the nomination. However some see section 5(2)(a) of the Transfer Duty Act as allowing the original purchaser to escape paying transfer duty by use of a nomination clause acting as a resolutive condition.

It reads as follows:
(2) (a) If a transaction whereby property has been acquired, is, before registration of the acquisition in a deeds registry, cancelled, or dissolved by the operation of a resolutive condition, duty shall be payable only on that part of the consideration which has been or is paid to and retained by the seller and on any consideration payable by either party to the transaction for or in respect of the cancellation thereof.

The other view sees the nomination clause as being a form of stipulatio alteri. Here the contract to acquire the property exists between the seller and the nominee so no right ever accrues to the original purchaser - and therefore no transfer duty becomes payable by him - unless the parties agree otherwise.

In concluding he also notes that using a method which will end the use of nominee purchases in property sales is not the way to go about preventing the tax-avoidance schemes since nominee purchases remain useful legal devices.

De Rebus website

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