MAIN IMAGE: Gray Muchechetere – associate at KWP Attorneys
Kerry Dimmer
Are your buyers and sellers aware that if they have tax debt, SARS may legally intervene to restrict or impede the sale or purchase?
Gray Muchechetere, an associate at KWP Attorneys, explains that it is doubtful the public is aware of this: “However, estate agents should advise sellers and purchasers of the implications of tax debt and should, therefore, request the property transaction parties to timeously get their tax affairs in order to avoid any delays or nasty surprises occurring in the transfer process.”
SARS, says Muchechetere, has compelling and far-reaching means to collect debt and is always the first preferred creditor. “Tax debt is usually related to unpaid taxes, interest, and penalties related to income, donations, capital gains, expat tax, or VAT.
For SARS to collect such debt, an assessment has to be raised against the taxpayer. This assessment, in essence, notifies the taxpayer what they owe, how the debt was raised, and the due date for payment. The recipient is also advised what remedies are available, for example, if the taxpayer wishes to dispute the assessment or make a payment arrangement.
“Whether the taxpayer agrees or disagrees, you have to pay first and argue later, unless the defaulting taxpayer requests a suspension of payments, which is when the obligation to pay is suspended until the dispute has been resolved.”
How does SARS know about the sale?
“SARS knows that an individual is selling their property at the transfer duty clearance stage. The acquisition of any immovable property is subject to the payment of transfer duty, which is levied for the benefit of the National Revenue Fund on the value of any property in terms of the Transfer Duty Act 40 of 1949,” explains Muchechetere. “Therefore, no property can be transferred or registered without payment of transfer duty or clearance from SARS, which will determine if the property value is exempt from payment of transfer duty.
“SARS has to issue a Transfer Duty receipt or exemption, which is filed at the Deeds Office when registering a transfer. At this point, SARS will become aware that a taxpayer has sold their property and that there is a purchase price due to them.”
In due course, the same information submitted to SARS for Transfer Duty purposes may also be used by SARS to verify that sellers have correctly disclosed the disposal of their property in their tax returns for Capital Gains Tax purposes.
SARS will check whether both parties – sellers and buyers – are registered for tax purposes and if their tax returns and the payment of any assessments are current. Any problems will be communicated to the conveyancer who is attending to the registration of the transfer. “Should the taxpayer fail to resolve the problems to the satisfaction of SARS, the transfer process may be delayed as SARS may withhold the issue of a Transfer Duty receipt or exemption until it has taken the necessary steps to ensure tax compliance,” confirms Muchechetere.
SARS collects
Failure to make full payment or make an arrangement will result in the following actions which SARS can employ to collect:
(1) SARS may appoint any third party who presently (or in the future) owes the defaulter money or holds money for the individual to settle the tax debt with this money. This means SARS will instruct the taxpayer’s debtors to pay the money they owe over to SARS. This includes any bank holding the taxpayer’s money or conveyancers holding a purchase price for the property on behalf of the seller.
(2) A civil judgment may be issued, in which case a warrant of execution may be issued for the Sheriff of the Court to attach and sell the defaulting taxpayer’s assets.
Conveyancer as a SARS agent
Part of this tax debt collection process may mean attaching property or appointing the conveyancer as SARS’s agent for collection purposes. Under such circumstances, the conveyancer would, therefore, be directed to pay any proceeds to SARS due to the seller.
Failure to pay the tax debt
Should the debt not be paid by the determined expiry date, SARS must deliver a final demand letter to the taxpayer. “This letter requests the taxpayer to make full payment within ten business days from the date of the letter of demand,” says Muchechetere. “At this time, the taxpayer may do one of three things.
“Within ten business days, apply for payment in instalments or suspension of the debt where the taxpayer intends to submit or has submitted a formal dispute. This will suspend the obligation to pay until the dispute has been resolved. Another solution is to compromise a portion of the tax, which will provide a higher return to the fiscus than liquidation, sequestration, or another collection measure. The taxpayer may also consider applying for a reduction of the amount to be paid to SARS, based on financial hardship.”
Importantly, SARS will not offer to purchase or take a debtor’s property instead of payment. SARS will, however, allow the sale if the intention is to settle the debt from the sale proceeds. In this case, as mentioned, SARS will instruct the conveyancer to settle the debt once the money becomes payable.
“SARS’s ability to block a transfer is indicative that you should never mess around with the organisation. It can truly make a person’s life very miserable,” concludes Muchechetere.
