Central to the issue, says Gerhard Kotzé, CEO of the ERA South Africa property group, is the South African system where there is almost always a "chain" of buyers and sellers in a given property transaction.
"We are all familiar with 'subject to' clauses in an offer to purchase and overwhelmingly, the minority of property deals in South Africa is unencumbered, that is cash deals.
"As the saying goes, a chain is only as strong as its weakest link. You have to protect yourself as far as possible should one of those links fail."
Kotze says it is well known that the South African Revenue Services (SARS) has been tightening up on delinquent tax payers - hence the large increases in what SARS delicately likes to call "collections".
"SARS is reportedly also keeping a special eye on property transactions as a means of identifying tax cheats. Obviously, if someone buys a home at a price that is out of kilter with his declared earnings, it sounds a warning bell with SARS, which has access to deeds office information before the transfer is registered.
"If a potential problem is identified, the transaction could be stopped until the case is investigated. That would take time and could mean that the other participants in a property deal have their plans totally thrown out of the window."
The deal could simply fall through, but even more to the point, SARS could end up taking a long look at the tax affairs of all the participants, so the knock-on effect on their private and business lives could be significant.
"The simple answer is to ensure your own tax affairs are in order so that SARS gives you a clean bill of health and, just as importantly, to ensure that your offer to purchase includes a clause which would allow you to cancel the deal without prejudice should one or more of the parties in the chain have a tax problem."
For more information contact dirk@spiralsight.co.za. Article obtained and published by property24.com