1 Apr 2014
New spatial plans for cities, upgrading informal settlements, increased social infrastructure and improved public transport, coupled with the aims to deliver more than 200 000 new social housing units over the next 2 years, all represented positive news for both the economy and the property market.
Presented by Di Seccombe, National Head of Tax Training at audit and advisory firm Mazars, the seminar delivered a broad analysis of the recent 2014/ 2015 Budget Speech, as well as recent legislative and administrative changes that impact the SA property industry and real estate agents in particular. Seccombe says there had been no great surprises delivered in the latest Budget Speech, as Finance Minister Pravin Gordhan instead appeared to tread a fine line (as well as an ‘election tightrope’) between balancing South Africa’s social demands with the need to prove to ratings agencies such as Moody’s, Fitch and Standard & Poor’s, and thus to international investors, that there is a steady hand on the country’s financial tiller. He ultimately stuck fast to the government’s plan to reduce spending, grow the economy and cut its budget deficit. From a real estate point of view, says Seccombe, the budget did not bring any specific tax relief for home buyers or owners, either by way of a higher transfer duty threshold or by means of providing further tax deductions in respect of homeownership related expenses. Such relief may have helped to alleviate the current decline in housing affordability, particularly as house prices and interest rates rise, and salary increases fail to keep up with higher household costs. Interestingly, however, the income that government earns from transfer duties surged by 28 percent in the 2013/2014 tax year, which suggests that the housing market is on its’ way to a recovery following a five-year slump, she says. Seccombe says the Minister was also not specific about the government’s plans to achieve economic growth and specifically to support small businesses in any meaningful way, as this is always the best creator of jobs and, ultimately, housing demand. However, new spatial plans for cities, upgrading informal settlements, increased social infrastructure and improved public transport, coupled with the aims to deliver more than 200 000 new social housing units over the next 2 years, all represented positive news for both the economy and the property market, she says. Whilst Gordhan’s announcement of R9.3 billion worth of personal tax relief to cash-strapped consumers was met with much public gratification, Seccombe was quick to point out the facts in this regard. She says with consumer incomes under increasing pressure from rising transport, food and utility costs, the household tax relief announcement would not (taking into account moderate salary increases) make a great difference to ‘take-home pay’ and disposable income. With tax brackets essentially being ‘widened’, this was also likely to result in individuals falling into the same tax bracket as the previous fiscal year. However, welcoming news to South Africa’s financial (and property) communities, says Seccombe, was that South Africa’s tax collection once again appears to have been exceptionally efficient, bringing in more than anticipated. For the first time since the recession, corporate revenues will exceed the 2008/2009 peak of R1.65 billion. She says much of this can be attributed to the Tax Administration Act and third-party data verification legislation afforded by Government Gazettes 35090 and 36346, which have significantly improved SARS’s ability to monitor that taxpayers are making full disclosure of all income in their annual tax returns. The above legislation has afforded SARS previously unprecedented power and access to information, and substantially increased ability to collect taxes owing. It has thus transformed banks, medical aid schemes and other third-parties into agents of SARS, in terms of verifying tax return information. This third party information includes, among other things, rental income, disposal and buying of shares, interest and dividend income, purchase of retirement funding, medical aid contributions and insurance payouts on death. In this respect, it is important to note that any rental or managing agent, collecting monies on behalf of a landlord, is now legally required to submit all information in this regard directly to SARS in order to assist with data verification. With increased rental demand stimulating growth in the ‘buy-to-let’ market, Seccombe says expenses claimed for repairs and maintenance will be scrutinised by SARS. Expenses incurred in respect of repairs have to relate to trade assets that are damaged or have deteriorated. Expenses incurred replacing assets that are serviceable for purely aesthetic reasons will not qualify for a tax deduction. The cost of improvements, reconstructions or additions to a property cannot be deducted as these expenses are of a capital nature. Neither will a deduction be allowed for repairs, if you repair a property which was previously let and which you now want to occupy or sell. You will need to make the repairs whilst your property is being let. Also worth noting, she says, is that there is a fine line of distinction between repairs and maintenance on the one hand, and improvement and reconstruction on the other. Each case is assessed on its’ own merits. Seccombe says in the case of a commercial property transaction, it is also important to note that if the seller is a VAT vendor, and the sale is in the course and furtherance of the seller’s enterprise, VAT will ordinarily be payable at the rate of 14 percent. If, however, a commercial property is sold as a going concern, the transaction will be ‘zero-rated’, provided that:
Estate agents and conveyancers also have a duty to inform the buyer that if a seller is a non-resident, that there may be a withholding tax responsibility for the buyer when paying the non-resident the purchase price. The estate agents and conveyancers incur this obligation, if either or both are involved in the transaction and are being paid for performing this function. If they do not inform the buyer as required, they can be held jointly and severally liable for payment of the tax, up to the amount of their respective fees from the deal.
If no agent or conveyancer is involved, and the buyer knows or should have known that the seller is not a resident, the buyer then becomes personally liable for the tax that should have been withheld. The rate of withholding tax is dependent on the legal nature of the seller and will only apply to properties selling for more than R2 million. The withholding tax is an advance payment of the capital gains tax ultimately payable by the non-resident seller when they submit their tax return to SARS.
In a complex tax environment, with constantly changing legislation, and an efficient and effective South African Revenue Service, Herold Gie Attorney’s highly qualified and experienced Property and Tax attorneys are on hand to provide sound and up-to-date advice on all property related legal issues.