EY Suart Attorneys

This newsletter is for our valued clients and is intended to inform them of recent developments in our law and of other matters of interest. This newsletter and other articles are available on our website. Kindly advise should you not wish to receive this newsletter in future and feel free to distribute it to your friends or other interested parties if you so wish. Contributions are made by our directors and professional assistants.  Please also refer to our disclaimer at the bottom of this newsletter.

 

THIS MONTH:

(1)  SALE OF IMMOVABLE PROPERTY: WHEN MUST CAPITAL GAINS TAX BE DECLARED?

(2)  DIFFERENT MARRIAGE REGIMES APPLICABLE

(3)  MAY A BANK REVERSE AN EFT UPON REQUEST BY A PAYER?  IF SO, WILL THEY DO SO?

(4)  WHICH RULES APPLY?

(5)  ABOUT US 

 

1)  SALE OF IMMOVABLE PROPERTY:  WHEN MUST CAPITAL GAINS TAX BE DECLARED

You have finally managed to secure an offer to purchase for your property and proceeded to instruct a conveyancer to commence with the transfer of your property. The Conveyancer explained the financial aspects of the transaction and the procedure that will be followed to effect successful registration of the transfer in the Deeds Office.  With the excitement of securing a willing and able purchaser, together with information overload, one important financial implication is regularly forgotten or in some instances, misunderstood.  You have crossed your t’s and dot the i’s but what about Capital Gains Tax (CGT).

In general, South Africans understand that CGT is applicable on the disposal of an asset and that certain exceptions may apply on disposal of the asset. The important question for purposes of this article is, if CGT is applicable, when must it be declared to SARS.

Liability for CGT arises on the disposal of an asset. An asset is widely defined as property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency, but including any coin made mainly from gold or platinum; and a right or interest of whatever nature to or in such property.

“Disposal” is defined as any event, act, transfer or extinction of an asset. This definition is further extended to include events which constitute the alienation or transfer of ownership of an asset, for example a sale, donation or cession. The time of disposal is therefore regarded as the date of change of ownership, and it is here where the misunderstanding or grey area arise: “the date of change of ownership”.  In conveyancing terms, date of change of ownership is the successful registration of the transfer in the Deeds Office.

However, in terms of the Eight Schedule to the Income Tax Act no. 58 of 1962, the date of change of ownership is triggered on the occurrence of one of the following events:

1. Agreements subject to a suspensive condition – the date on which the condition is fulfilled;

2. Agreements not subject to a suspensive condition – the date on which the agreement is concluded;

3. Donation – the date of compliance with all the legal requirements for a valid donation;

4. Expropriation – the date on which the compensation agreed to is received or finally determined by a competent tribunal or court;

5. Granting, renewal or extension of an option, the date on which the option is granted, renewed or extended;

6. Exercising of an option – the date on which the option is exercises

In basic terms, your property was sold, and a deed of sale was signed on the 1st of February 2019 and the suspensive condition is fulfilled on the 10th of February 2019. The registration of the transfer in the Deeds Office will only take place during the month of March 2019. The CGT was therefore triggered on the 10th of February 2019 and therefore the CGT must be declared in your annual income tax return for the tax period 2018/2019.

CGT for immovable property is therefore triggered on the occurrence of one of the aforesaid events and not on the date when the transfer was registered, and the proceeds of the sale is paid into your bank account. The bottom line, CGT accrue in the financial year when the contract is signed and the suspensive condition fulfilled, irrespective of date of registration in the Deeds Office.

Hannelie Hattingh - Conveyancer

2) DIFFERENT MARRIAGE REGIMES APPLICABLE 

In our January 2019 newsletter, we briefly touched base to distinguish between contested and uncontested divorces.

During the following months, discussions will be held in depth about the following aspects:

  1. Different marriage regimes (February newsletter)
  1. The powers of the court to allocate financial resources and property on divorce i.e. division of assets in a divorce matter (March newsletter)
  1. Spousal maintenance (April newsletter)
  1. Retirement funds (May newsletter)

To determine the powers that the court may have to grant orders for financial relief and property transfers upon divorce, one must first determine the marriage regime applicable to the marriage relationship between the parties.

In this letter, we will discuss the different marriage regimes applicable to marriages concluded under South Africa law.

It has recently come to my knowledge that some women and/or men currently married, or on the brink of getting married, do not know that there exist different marriage regimes and they normally end up choosing the same marriage regime applicable to that of their friends’ marriage relationship and consequently stand to be unaware of the consequences of each regime.

DIFFERENT MARRIAGE REGIMES

In South-African, one of the following marriage regimes find application:

• In community of property (before or after 1 November 1984)

• Marriages out of community of property concluded before 1 November 1984 (without the accrual system)

• Marriages concluded after 1 November 1984 (an antenuptial agreement is concluded)

• Out of community of property without application of the accrual system

• Out of community of property with application of the accrual system

IN COMMUNITY OF PROPERTY

(Husband/Wife equally shares the joint estate)

Unless the parties have entered into an agreement in terms whereof community of profit and loss are excluded (antenuptial contract), the patrimonial regime applicable to a marriage will be that of a marriage in community of property.

Both parties are deemed to be owners of undivided equal shares of the joint estate and the joint estate makes up the sum  total of the assets and liabilities of the parties, with the exception of assets that do not fall within the joint estate such as inherited assets, donations etc. which were specifically excluded in terms of a condition applicable to the inheritance or donation.

The nature of the relief which the parties can claim when married under this regime, is either an order for division of the joint estate in terms whereof a liquidator/referee would be appointed to divide the joint estate or an order for forfeiture of the benefits of the marriage in community of property (for the sake of this newsletter, we will not deal with claims for forfeiture at this stage).

PRIOR TO 1 NOVEMBER 1984

Prior to the commencement of the Matrimonial Property Act 88 of 1984, two matrimonial property systems existed in South African, namely, community of property and profit and loss, or marriage out of community of property with exclusion of community of property and profit and loss.

Marriages concluded out of community of property with exclusion of community of property and profit and loss, concluded prior to 1 November 1984 are based on the principle that each spouse retains his/her own separate estate.

Should one of the spouses hold that his/her contribution (either directly or indirectly), resulted in the growth or increase of the other spouse’s estate during the existence of the marriage, then a claim in terms of section 7(3) of the Divorce Act, may be used as a remedy to claim  a redistribution of the assets of the respective parties This was introduced to redress the financial imbalance suffered by a spouse on termination of the marriage by divorce.

AFTER 1 NOVEMBER 1984

After commencement of the Matrimonial Property Act, more specifically 1 November 1984, the so called “accrual system” was introduced and is only applicable to marriages concluded out of community of property.

Unless the accrual system is expressly excluded (without the accrual) in an antenuptial contract, it is applicable (with the accrual).

If no antenuptial contract have been concluded, then the applicable marriage regime would be in community of property.

OUT OF COMMUNITY OF PROPERTY WITHOUT THE ACCRUAL

What’s mine before and after the marriage, remains mine.

What’s yours before and after the marriage, remains yours.

Each spouse keeps a separate estate and whatever assets and liabilities they individually had before the marriage was concluded, forms part of their separate estates.

However, assets and liabilities acquired by each spouse during the existence of the marriage also fall within their separate estates.

This system gives each spouse absolute independence of contractual capacity and protects each spouse’s estate against claims by the other spouse or the creditors of the other spouse.

The courts do not have a discretion to direct a redistribution of assets between the parties.

OUT OF COMMUNITY OF PROPERTY WITH THE ACCRUAL

What’s mine before the marriage remains mine, what I acquire during the marriage, you would possibly have a claim to.

What’s yours before the marriage remains yours, what you acquire during the marriage, I would possibly have a claim to.

For the accrual system to apply, the spouses should conclude an antenuptial contract.

Accrual is a way to ensure that spouses in a marriage can gain a fair share of the growth of the other spouse’s estate once the marriage is dissolved by way of divorce.

Normally, what was yours before the marriage remains yours, but what you have acquired during the marriage belongs to both of you.  

Effectively this means that prior to marriage, both spouses would declare their net worth (commencement value) and would retain separate estates during the existence of the marriage.

On divorce, the party whose estate has shown less growth than the estate of the other party, may share in the growth of the estate of the other party. The accrual/growth is the difference between the net assets value of each spouse’s estate at the commencement of the marriage and the net asset value on divorce.

In calculating the accrual/growth of a spouse’s estate, the value of the assets specifically excluded from accrual sharing at the commencement of the marriage (in terms of and as recorded in the antenuptial contract) are excluded on divorce. This means, should the spouse have excluded a red sports motor vehicle from  the accrual at commencement of the marriage, the red sports motor vehicle or  the  value of its proceeds, in the event that it has been sold, would remain the sole asset of that spouse and the other spouse would not have any claim towards that asset or the value sounding in money/investment.

Certain assets acquired by gift, inheritance, donation or damages are also excluded from the accrual calculation and retained by that relevant spouse.

Upon divorce, each spouse’s net estate value (their assets, less liabilities, less excluded assets/commencement values) is determined separately. The larger estate must then transfer half of the difference thereof to the smaller estate. Putting it differently, the smaller estate must claim for an amount equal to half of the difference between the net accruals of the respective estates.

This right is only exercisable upon dissolution of the marriage relationship upon divorce or death of one or both of the spouses and therefore the right to claim or share in the accrual is not enforceable and cannot be attached by creditors during the subsistence of the marriage.

CAN THE MARRIAGE REGIME APPLICABLE TO MY MARRIAGE BE CHANGED?

Yes.

In terms of section 21(1) of the Matrimonial Property Act, a husband and wife may jointly apply to the High Court for leave to change the matrimonial system applicable to their marriage however granting of such an order is subject to the court’s consideration that sound reasons exist for the proposed change and that no other persons would be unduly prejudiced by the change.

            Erna van Biljon - Associate

3)  MAY A BANK REVERSE AN EFT UPON REQUEST BY A PAYER?  IF SO, WILL THEY DO SO?

Circumstances may arise where a person paying, or a paying bank may seek the reversal of an erroneous Electronic Funds Transfer (“EFT”) payment.  A payer may for example seek reversal of payment in a situation where goods where not delivered or where services were paid for in advance.  An EFT may, on the other hand, be made purely by mistake on the side of the payer, who wishes to claim back the erroneous payment. 

The question is – can a bank reverse an EFT upon request by a payer, and in which circumstances?

In South African law, a payment, irrespective of its form, is complete when funds are unconditionally credited to a beneficiary’s account. According to standard-form agreements, once authorisation for an EFT has been given by a client of a bank and payment completed, the EFT cannot be countermanded or reversed without first obtaining the consent of the recipient.

There are, however, differing views on the legal nature of an EFT. Some authors of legal textbooks argue that an EFT is a conditional payment, subject to the condition that the recipient is entitled to the amount and therefore banks should be able to reverse the transactions. Others argue that when the request is given to a bank to transfer an amount and the bank executes that instruction, it is an unconditional payment and therefore the bank does not have the capacity to reverse the transaction.

The courts have had the opportunity to answer this question on a few occasions and, when regard is had to the facts of the matters before it, came to basically the same conclusion.

In Take and Save CC v Standard Bank, the Supreme Court of Appeal held that countermand of an EFT is not possible in the absence of the beneficiary/recipient’s consent as, according to the court, once the money is transferred from the payer to the recipient, the money belongs to the recipient and the bank has to keep it at the recipient’s disposal.  This accords with the unconditional payment argument.

In Nissan South Africa v Marnitz, the Supreme Court of Appeal referred to the judgment of Take and Save CC v Standard Bank and stated that this judgment must be read in context.  The Take and Save -scenario is one where funds were validly transferred, hence the reason for consent by the recipient to reverse the transfer.  In the case of Nissan South Africa v Marnitz an incorrect payment was made to a person not entitled thereto.  The recipient/beneficiary had also used part of the amount incorrectly transferred, even after a request by the payer to repay the amount incorrectly transferred.  The court held that this constituted theft and the court ordered the undue recipient to release the amount to the payer.  The court based its order on “entitlement” and focusing on which party is entitled to the funds.  The court however further stated that, should a bank unilaterally reverse the credit to the customer’s account, it would be doing so at its peril.

It is therefore clear that a bank is not liable to reverse an EFT upon a mere request to do so and is well entitled to adopt the “stance of a stakeholder” as described in the Nissan judgment. 

In conclusion:  where a valid EFT payment is made, it cannot be reversed without the consent of a recipient.  Where an invalid/ undue payment is made, the recipient, who is not entitled thereto, is liable to repay the EFT, but a bank will not do so without the recipient’s consent or an order by the court.  The bank will therefore protect itself and not unilaterally reverse an EFT or get involved in the dispute between the payer and recipient and will only reverse an undue EFT when a court order or the like is obtained.

From the Nissan case it seems clear that banks are not liable to reverse an EFT and should be wary of doing so, especially in an era where digital fraud seems to be near its peak.

  Thomas Wood - Candidate Attorney

4)  WHICH RULES APPLY?

Since the Sectional Titles Schemes Management Act, Act 8 of 2011 (“the STSMA”) came into operation on the 7th of October 2016, there has been much debate amongst legal practitioners and role players involved in the administration of Sectional Title Schemes, as to which Schemes the Prescribed Management Rules under the STSMA apply.

Attorney Brian Agar, in an article published in the attorneys journal, De Rebus (October 2018), expressed the view that Schemes registered under the Sectional Titles Act, 95 of 1986 (“the STA”)retain most of their Management Rules and is not subject to the new Prescribed Management Rules (Annexure 1 under the STSMA) and therefore do not require a maintenance plan.

Mr. Tertius Maree, in my view, correctly criticised the views expressed by Mr. Agar in his contribution to the De Rebus journal (January/February 2019, page 20).

The aforesaid contributions and views by my learned colleagues are of great value to the Sectional Title industry.  Their full articles can be viewed on our website.

The relevant provisions of the STSMA under debate are the following:

Section 10(12) of the STSMA:

“(12)    Any rules made under the Sectional Titles Act are deemed to have been made under this Act.”

Section 21 of the STSMA:

“(21)    Rules prescribed under the Sectional Titles Act must continue to apply to new and existing schemes until the Minister has made regulations prescribing management rules and conduct rules referred to in section 10(2) of this Act.”

Mr. Agar interpreted the word “made” to mean to be made by the legislature.

Mr. Maree indicated that it is widely accepted that the word “made” referred to in Section 10(12), should be understood to mean “amended rules adopted by respective Bodies Corporate and not rules made by the legislature”.

Mr. Maree finds further support for this interpretation in Section 21.  In terms of this Section, rules under the STA continue to apply until new Regulations prescribing Rules have been made.

The new rules (Annexure 1 and 2 Rules under the Regulations) were published on the 7th of October 2016, at which date the “old” Prescribed Rules lapsed and the new rules became applicable to all Schemes, old and new, except in respect of special rules made by the Bodies Corporate under the STA, which special rules are retained.

Mr. Maree therefore concluded that rules prescribed under the STSMA apply to all Sectional Title Schemes, save to the extent that special rules were made under the STA and which rules are not irreconcilable with any Prescribed Management Rules.  As a result, the maintenance plan requirement provided for in the Annexure 1 Management Rules apply similarly to all Schemes.

In the STA the legislature provided in the transitional provisions for special rules made under Schedule 1 of the Sectional Titles Act, 71 of 1972 to be retained, subject only to the condition that such rules may not be irreconcilable with any Prescribed Management Rules and provided further that such rules are deemed to be supplemented by any rule for which it does not make provision, but for which provision is made in the Prescribed Rules.

In this regard I can refer to Section 60(8) under the STA:

“60(8)  Subject to the provisions of subsection (4) of this section, any rules other than rules referred to in subsection (7) of this section, applying in respect of a scheme immediately prior to the commencement date, shall, subject to such substitution, addition, amendment or repeal as contemplated in paragraph (a) or (b) of section 35(2) of this Act, as the case may be, remain in force after the said date, except to the extent that any such rule may be irreconcilable with any prescribed management rule contemplated in section 35(2)(a) in which case the management rule concerned shall apply: Provided that any such rules shall as from the commencement date be deemed to be supplemented by any rule for which it does not make provision but for which provision is made in the prescribed rules.”

A similar provision is found in Section 10(11) of the STSMA in respect of rules made under the 1972 Act and I quote:

“10(11) Any rules other than rules referred to in subsection (10) which applied in respect of a scheme immediately prior to 1 June 1988 must, subject to such substitution, addition, amendment or repeal as contemplated in subsection (2)(a) or (b), as the case may be, remain in force after the said date, except to the extent that any such rule may be irreconcilable with any prescribed management rules contemplated in subsection (2)(a), in which case the management rules concerned applies: Provided that any such rules were as from 1 June 1988 considered to be supplemented by any rule in the  prescribed management rules which is not provided for in such rules.”

In my view, the legislature simply omitted to import a similar rule in respect of rules made under the STA and hence the confusion. 

According to Section 10(11), indications are that altered rules remain in force, except to the extent that any such rule may be irreconcilable with a Prescribed Management Rule and provided further that any such rules are considered to be supplemented by any rule in the Prescribed Management Rules which is not provided for in the altered rules.

To the contrary, Mr. Maree indicated that the transitional clause, Section 21 of the STSMA, holds that rules prescribed under the STA continue to apply until the new rules were promulgated on the 7th of October 2016, when the old Prescribed Rules lapsed and the new rules, including the maintenance plan requirement rule, apply.

In conclusion and having considered the views expressed, I am of the opinion that the following guidelines can be applied:

1) Special rules (amendments deviating from the Prescribed Management Rules) made under Section 35 of the STA continue in operation;

2) Prescribed Management Rules under the Regulations to the STA (Annexure 8) have lapsed on the 7th of October 2016 and are replaced by the Annexure 1 Rules as contained in the Regulations under the STSMA;

3) Special rules may not be irreconcilable with any Prescribed Management Rules (Annexure 1 under the STSMA);

4) The maintenance plan requirement rule therefore applies to all Schemes, new and old, subject only to the extent that these rules may in future be substituted, added to, amended or repealed by Unanimous Resolution of the Body Corporate [Section 10(2)(a)].

Further support for this view and interpretation is found in the provisions of Section 3(1)(b), dealing with the functions of a Body Corporate and which Rule stipulates that such functions include the establishment and maintenance of a reserve fund.  Why would the legislature include the establishment of a reserve fund as a function of a Body Corporate established under the STA without the requirement to compile a maintenance plan?

Elmo Stuart - Director

5)  ABOUT US

 

To view our previous newsletters, please visit our website on http://www.eyslaw.co.za.

Kind regards,

EY STUART INC.

 

Disclaimer: The information disclosed herein is not intended to constitute legal advice and is not guaranteed to be correct, complete, or up-to-date. You should not act or rely on any information emanating from this Newsletter without seeking the advice of an Attorney, as the facts relating to your circumstances may influence any advice or information conveyed herein. Should you require legal representation, then please do not hesitate to communicate with us for further information and our standard mandate terms.