The Receiver’s net is becoming tighter as it works to increase the number of income earners who pay tax. But it may be that in some cases it has overstepped its mark.
For example, you may suddenly find that the sale of a property has been held up due to the fact that one of the parties involved — seller, buyer or agent — is not tax compliant. Some of the measures adopted by the South African Revenue Services (Sars) to keep taxpayers up to date are not necessarily legal, says Nina Keyser, senior tax associate at legal firm Webber Wentzel Bowens.
Before a property can be transferred, transfer duty is payable to Sars, which is then required to issue a receipt confirming payment of the transfer duty so that transfer can take place. However, Sars is refusing to issue these receipts if either the buyer or seller or even the agent’s tax affairs are not in order.
According to Melanie David, conveyancing attorney for Powerhouse, a company that represents buyers, it has had three incidents where transfers were held up and in two of those cases the agents were the ones in question.
“This practice has become commonplace and it is now covered in many sale agreements. We ask these questions before a sale is agreed to and also recommend to our clients to get their affairs in order before the application for transfer.” David says that this practice can delay transfer by up to three months.
Keyser questions the legality of this practice. The law stipulates that information from both parties is required as part of a declaration, but once this information is provided to Sars, it is not legally entitled to withhold the receipt. “Once transfer duty has been paid and both parties have met the legal requirements of declaring their information, the Receiver is obliged to issue the receipt,” says Keyser.
While many people agree that the measures taken by Sars to increase the tax net are commendable, people need to understand their rights and it would be wrong to prejudice one party within the transaction due to lax tax compliance by the other party. Keyser argues that the declaration has already furnished Sars with information with which it can pursue the offender, and that the transfer itself should be seen as an entirely separate issue. Once the property deal has been concluded, Sars has all the information to chase down the tax offender and bring them into the tax net without prejudicing the other party.
Keyser says that she has handled issues where transfer was delayed because the seller’s PAYE returns were not up to date. “That has nothing to do with the transaction in question and should not affect transfer of the property,” says Keyser, who also says that as Sars does not have a legal right to refuse to issue a transfer duty receipt under such circumstances, the parties must demand that Sars issue the receipt for money they have paid. Any person affected by Sars’s administrative actions are entitled to request written reasons. The problem is that Sars legally has 90 days to respond to the request, and with property transfers, time is usually of the essence.
However, the counter argument is that Sars does have the right to appoint any person who holds money on behalf of a taxpayer as the taxpayer’s agent and recover any taxes that are due from that agent. The only way Sars can know what is due is if all the tax information is up to date. David says she has received several applications from Sars to hold back the proceeds of the sale. “Sars is now clued up enough to match the income tax with the transfer duty. They are turning [conveyancers] into mini-Sars offices.”
Sars argues that the only way it can know if someone owes them money is if their taxes are up to date, therefore it has a right to delay transfer. According to a Sars source, “where sellers owe taxes, conveyancers will be appointed as the agents of Sars to pay over monies held by them. Sars notifies conveyancers where there are problems relating to the tax affairs of buyers or sellers. The parties concerned will be given the opportunity to rectify matters, but should they fail to respond to the request, the issue of transfer duty receipts/exemptions will be delayed until Sars has issued garnishee orders or taken other steps to ensure compliance.”
But Keyser argues that firstly the Act requires Sars to be aware of monies owed before it can delay transfer, rather than using it to gather information. She also argues that in the event of non compliance, rather than delaying transfer and affecting all parties negatively, Sars should appoint the conveyancer as agent and still produce the transfer duty receipt to effect sale. Once the money is paid, Sars can collect it from the agent.