Taxes on trusts that SARS will never collect
There’s some pretty stupid tax legislation out there that leads to taxes that SARS hasn’t a hope of collecting. Here are some of them –
1. Transfer Duty on sale of shares in a company owning residential property.
If the shares in a company owning mostly residential property (a so-called residential property company) are sold, then this is deemed to be the sale of the property itself. The sale then attracts Transfer Duty. The problem that SARS has is that the only place where the sale of shares is recorded is in the Share Register, which sits on the server of the company that did the share transfer, and which issued the new share certificates. Not much chance of collecting that tax!
2. Transfer Duty on sale of shares in a trust owning residential property.
If a trust owning mostly residential property is sold, then this is deemed to be the sale of the property itself. This sale also attracts Transfer Duty. The problem SARS has is that the only thing that evidences the sale of a trust, is the change of trustees and beneficiaries, and this is recorded in the Master’s Office only. There’s not much chance of collecting that tax either!
3. Donations tax.
I have been in practice for over 30 years, and I have never been asked to complete a Donations Tax Return. Why? Because a donation may, or may not, be recorded on a Deed of Donation, which may, or may not, be filed somewhere.
4. CGT on the sale of Pty Ltd company to a trust.
The shareholding is only recorded in one place – the Share Register, which may, or may not, be held on somebody’s server somewhere. So, how does SARS get to know that the shares have changed hands? CIPC only has a record of the Directors, and not the shareholders.
However, there is a question in the company Tax Return – “Has there been a change in shareholding during the year?” What is the answer? That depends how you interpret the question. Does SARS mean – “Has there been a change in the number of issued shares”, or “Have the issued shares changed hands?” If you read it the first way, then the answer will be “No”, and, if read the second way, it is “Yes”. You choose.
5. Securities Transfer Tax.
Whenever there is a transfer of shares from one holder to another, Securities Transfer Tax at 0,25% is payable. Non-payment is an offence, but does not invalidate the transfer. See 4. above to understand SARS’ problem with this one.
I am not advocating non-payment of taxes, but I am advocating realistic, enforceable legislation. Not just with regard to tax, but across the entire swathe of legislation that gets passed in South Africa by politicians who think that, by passing a law, they solve a problem!