VAT Relief coming for developers who rent out unsold property

Due to current harsh economic circumstances, many developers are struggling to sell the residential units in their developments. To rent these out is an option in order to generate funds, but VAT legislation considers this a change in use of the property, thereby triggering VAT liability in the hands of the developer.
SARS took note and proposed amendments to the VAT Act as follows: if

• a developer rents out residential properties before their intended sale (that were constructed with the purpose of selling them in the normal course to the public); andthe 
• property is subsequently temporarily let;

then such supply by the developer will be deemed not to be a VAT-able supply.

The amendments are set to come into effect soon, but will be temporary in that such exemption will only be granted until 2015. In addition, it is limited to rental of a maximum period of 36 months before any sale of the property.

CPA Lease agreements- when may they exceed 24 Month?

In terms of the Consumer Protection Act, a lease agreement between a supplier and a consumer (as defined in that Act) may not exceed a period of 24 months. However, the following exceptions apply:

• where both parties are juristic persons;
• where the landlord is able to prove that the property being leased is not part of any of his business operations and that the lease is a “once off” transaction;
• where the lessee is exempt from the operation of the Act, i.e., if the lessee is a company, trust or close corporation with a turnover or asset base over R2 million; or
• where it can be shown that there is demonstrable financial benefit to the lessee in a lease that extends longer than 24 months.

Interesting changes to the new companies act

The New Companies Act which came into force on 1 May 2011 has introduced some interesting changes, one of which concerns the sale by a company of the whole or a major portion of its assets.

The previous Companies Act required a special resolution by the shareholders which had to be registered with the Companies Office within 6 months of its passing, failing which it would be invalid.

The New Companies Act still requires the passing of a special resolution by the shareholders, but does not require it to be registered or filed with the Companies and Intellectual Property Commission for it to be valid.

The Companies and Intellectual Property Commission (CIPC), previously known as CIPRO, have recently confirmed that more than one million companies and close corporations have lately been either deregistered or are in the process of deregistration due to their failure to submit their annual returns.

The legal consequences of deregistration are severe: companies and close corporations lose their status as legal entities, their assets pass to the State and agreements concluded with them may be negatively affected. For example, should such an entity be the owner of immovable property, it would not be possible for it to sell or pass transfer of this property. 

 The good news is that the new Companies Act (section 82(4) read with Schedule 3, Part 8) provides that application can be made to reinstate the registration of both a company and close corporation if it was deregistered as a result of non-filing of annual returns.  Such a reinstatement will have the effect of reviving the company or close corporation’s rights and obligations.

However, when such an entity is the owner of immovable property, additional requirements are laid down: the written consent of both the Departments of Treasury and Public Works are to be obtained prior to lodging the application.
Since the process of transfer of any property owned or purchased by such entities are effectively stayed until such entity is reregistered, significant delays are to be expected when a deregistered entity is involved.

You would therefore be well advised to verify the status of your Company or Close Corporation with CIPC, as well as that of any entity you intend to transact with prior to entering into a contract for the sale of immovable property.

Did you know that the insolvency of one spouse, even in a marriage out of community of property, can affect the status of the solvent spouse? In terms of Section 21(1) of the Insolvency Act the estate of the solvent spouse will also (initially) fall under the control of the Curator.

The deeds office will register an interdict against the personal details of the solvent spouse to the effect that the Curator will first have to confirm that the solvent spouse is free to deal with his or her own estate. This can be problematic where the solvent spouse wants to sell property or purchase property in cash.

When dealing with a sales transaction subject to VAT, it is important to obtain insight into the Seller’s VAT compliance background - the reason being that SARS is on a war path to put a stop to attempts by taxpayers to avoid paying VAT and/or transfer duty and personal tax. SARS has implemented measures to check a Seller’s compliance records to determine whether the Seller is guilty of not paying timeously, having outstanding payments or even not filing returns timeously. If any of the mentioned circumstances exist, SARS may require the Seller to take certain steps before issuing the transfer duty exemption, such as:

• Resolve outstanding obligations; or
• Provide security for VAT payments of current transaction; or
• Instruct the transferring attorney to undertake to pay VAT directly to SARS from the proceeds of the sale within 5 days of registration.

Did you know that in terms of the Sectional Titles Act, where a real right to extend a scheme has been reserved in favour of a developer, such right must be disclosed to the purchaser in the agreement of sale?

Where that real right has not been disclosed in the agreement of sale it is voidable at the instance of the purchaser.

In a Sectional Title Scheme, a unanimous resolution can be passed without convening a meeting. Any such proposal must be sent to all the individual owners calling for all members of the Body Corporate to agree in writing to the suggested proposal. Should all the owners consent in writing, a valid unanimous resolution has been taken.

If you have acquired your ex-spouse`s share of a previously jointly owned property after your divorce, be that by Court order or private agreement, you need to submit a written application to the Registrar to endorse on the Title Deed that you alone are entitled to deal with the property.

Once the Title Deed has been endorsed in this way, you will be entitled to deal with the property as if you had taken formal transfer or cession into your name of your former spouse`s share of the property.

If you are considering donating a property to a beneficiary, it may be good advice to heed the saying: ‘Nothing is certain but death and taxes.’ The reason is that a donation of immovable property triggers both transfer duty and donations tax!

Transfer duty will be taxed in the hands of the recipient of the donation, and donations tax at 20% of the value of the donation will be levied against the donor. There is a small rebate in that the first R100 000 of property donated each year by a natural person is exempt from donations tax.