If you owe SARS money, or perhaps you may not even be registered as a taxpayer, the sale of your house may be hindered legally, and this will only be revealed when the property is at the transfer duty clearance stage. This can cause enormous distress to not just the seller, but the buyer who may have to wait until the tax matter is settled to the satisfaction of SARS.
What is tax debt?
“Tax debt is usually related to unpaid taxes, interest, and penalties related to income, donations, capital gains, expat tax, or VAT,” says Gray Muchechetere, Associate at KWP Attorneys. “SARS takes this very seriously and will make a number of attempts to recover the unpaid taxes.
“For SARS to collect such debt, there has to be an assessment raised against the taxpayer, which 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 make a payment arrangement, dispute the assessment,, or apply for a suspension of payment while the dispute is resolved.
Making an arrangement to pay SARS
“If the taxpayer fails to pay the tax debt by the specified date, SARS is required to deliver a letter of final demand to the taxpayer “requesting the taxpayer to make full payment within 10 business days from the date of the letter of demand,” says Muchechetere. “At this time the taxpayer may apply any one of the following remedies;
“Within the said 10 business days, the taxpayer can apply to pay the debt in instalments or request a suspension of the debt whereby 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 remedy, available only to juristic persons, is to compromise a portion of the tax where this will provide a higher return to the fiscus than liquidation, sequestration, or other collection measures. If the taxpayer is a natural person, he or she can apply for a reduction of the amount to be paid to SARS, based on serious financial hardship.”
How does SARS know you are selling your property?
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.
“No property transfer can be registered without a Transfer Duty Clearance from SARS. To process the transfer duty, SARS requires the conveyancer attending to the registration of the transfer to disclose, among other details, the tax and certain specified personal details of the seller and purchaser, and the value of the property” says Muchechetere.
SARS will check whether the seller is tax compliant and determine, based on the value of the property, if transfer duty is payable or exempt. If the taxpayer is compliant, SARS will issue a Transfer Duty Receipt reflecting payment of the Transfer Duty or an exemption, which is filed at the Deeds Office when registering a transfer. If the taxpayer is found to be non-compliant and fails to resolve any problems to the satisfaction of SARS, SARS has the legal right to delay the issuing of a Transfer Duty Receipt.”
“Alternatively, SARS can attach the property or appoint the conveyancer as an agent of SARS for collection purposes, which means the transfer will be allowed to proceed but the conveyancer will be directed to pay the received purchase price received notto SARS , on behalf of the seller, such as deposits or the full property payment.,” explains Muchechetere.
What SARS can’t do, however, is offer to purchase the property or take the property in lieu of payment. It may consider allowing the sale to move forward, however, if there is an intention to settle the debt from the proceeds of the sale, as arranged with the conveyancer.
“The same information submitted to SARS for Transfer Duty purposes will, in due course, 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,” says Muchechetere.
Other implications
In the event that the purchase price or the amount raised following the selling of the attached property fails to satisfy the tax debt, SARS can:
Appoint any third party who presently (or in the future) owes the defaulter money or hold money for the individual, in order 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.
Cause a civil judgement to be issued against the taxpayer, 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.
Heed the warning
"Whether the taxpayer agrees or disagrees with a SARS tax debt, the defaulting taxpayer has to pay first and argue later. That is unless there is a suspension of payment agreement, which is when the obligation to pay is suspended until the dispute has been resolved,” says Muchechetere.
“Bear in mind that SARS has very powerful and far-reaching means to collect tax debts and is always the first preferred creditor. I recommend that anyone selling their property, or considering purchasing one, should first get their tax affairs in order, which will avoid any delays or nasty surprises at the transfer stage of a property sale.”
