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 the buyer for or in respect of the cancellation thereof, provided that on cancellation or dissolution of that transaction, such property completely reverts to the seller and the original buyer has relinquished all rights and has not received nor will receive any consideration arising from such cancellation or dissolution.
The intention of section 5(2)(a) of the Transfer Duty Act, 40 of 1949, is to grant relief to a purchaser who is unable to proceed with a property transaction. The purchaser abandons the rights to the property and sometimes also forfeits a “deposit” or part of the consideration which may have already been paid, or which is still to be paid, or which becomes payable as a result of the cancellation. Section 5(2)(a) stipulates a requirement that the cancellation must result in a complete reversion of the property and that all rights thereto must be relinquished, together with the requirement that any consideration retained is dutiable, is further supported by section 5(1)(b) which states –
“[u]pon the subsequent disposal of property referred to in paragraph (a), the person so disposing of it shall, in the declaration to be made by him in terms of section fourteen, set forth the circumstances of such previous transaction and of the cancellation thereof and shall furnish particulars relating to the payment of duty in connection therewith, and any duty payable in connection with such previous transaction but still unpaid shall be paid by the person so disposing of the property, who may thereupon recover the duty so paid from the person liable for the payment thereof in terms of section three.”
Section 5(1)(b) is a monitoring mechanism to avoid the alteration of documents so as to create the impression of the cancellation of a transaction when, in fact, the relationship between the parties to the transaction continues essentially unaltered. “Cancellation” as contemplated by section 5(2)(a) therefore requires the complete extinction of all the existing obligations between all parties concerned. Obligations on the original purchaser to pay, for example, interest until a new purchaser is found, must fall away. In the event that interest remains payable, the obligations have not been completely extinguished and there is no cancellation as contemplated by the provisions of section 5(2)(a). Similarly, if any obligations between the parties in respect of rentals, levies etc provided for in the agreements purported to have been cancelled, are not extinguished such agreements cannot be regarded as having been effectively cancelled, and the liability for the full transfer duty on the original purchase price remains.
The leading case in this regard which demonstrates the law very clearly is Secretary for Inland Revenue v Hartzenberg1966(1) SA 405 (AD).
Should you require more information in this regard, kindly contact me.
TONKIN CLACEY PRETORIA
012 346 1278