Income Tax Case No: 11286
| Jurisdiction | South Africa |
| Judge | Mbha J |
| Judgment Date | 26 October 2007 |
| Citation | 2007 JDR 1096 (JSpCrt) |
| Docket Number | 111286 |
Mbha J:
INTRODUCTION
[1] The appellant is the Topkapi Trust ("the trust"), care of CFH Vaux of 3010 William Nicol Drive, Bryanston.
[2] The respondent is the Commissioner for the South African Revenue Service.
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[3] The trust was formed by notarial deed on 13 November 1995 as a discretionary trust with the principal object being to look after the welfare of the income and capital beneficiaries, namely Anthony Thomas Ogilvie Thompson and Meredith Ogilvie Thompson and their children.
[4] Julian Ogilvie Thompson ("Julian") donated R100,00 and the trustees were Anthony Thomas Ogilvie Thompson ("Anthony"), Meredith Ogilvie Thompson ("Meredith") and Timothy John Fearnhead ("Fearnhead"). The reference number of the trust being T7523/95.
[5] During November and December 1995, the trustees with the concurrence of the donor amended the trust to include Virginia Ogilvie Thompson ("Virginia) as an income and capital beneficiary.
THE PROPERTY
[6] On 18 December 1995 the trust acquired immovable property being Erf 2415, Houghton Estate Township ("the property") at a cost of R1 348 451,00.
[7] The property was acquired by the trust by various loans advanced to and payable by the trust. As at February 1998, the trust owed to:
The donor, Julian, the sum of R1 700 009,00;
The beneficiary, Anthony, the sum of R67 969,00;
Cheel Investments (Pty) Ltd, the sum of R629 494,00.
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[8] On 11 December 1997 the trust sold the property to Clive Frederick Herald Vaux ("Vaux") for R1 900 000,00. Vaux signed the offer to purchase the property in his personal capacity whilst Anthony signed the offer on behalf of the trust.
[9] On 10 February 1998 the trust and Vaux by agreement cancelled the aforesaid sale in terms whereof Vaux purchased the property for R1 900 000,00.
MATERIAL BACKGROUND FACTS
[10] On 11 February 1998, the outgoing beneficiaries, namely Anthony and Meredith, and the outgoing trustees, namely Anthony, Meredith and Fearnhead on the one part and the incoming beneficiary, namely Vaux of the other part entered into a written agreement, the material terms whereof are as follows:
Vaux undertook to procure the discharge of the indebtedness of the trust in favour of Cheel Investments (Pty) Ltd and Anthony in full as well as the indebtedness of Julian to the extent of R1 202 537,00.
Upon payment of the loan as aforestated, the trustees of the trust, namely Anthony, Meredith and Fearnhead agreed to resign as trustees and together with the beneficiaries of the trust, namely Anthony and Meredith undertook to procure Julian
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to cede the balance of his loan account in the sum of R 697,472-00 in the trust to Vaux, against payment by Vaux to Julian of the amount of R 200,000-00.
Anthony, Meredith and Fearnhead further agreed upon payment of the loan account in terms of paragraph 10.1 above to take the necessary steps to ensure that they no longer are trustees and/or beneficiaries and Vaux together with his nominees are appointed trustees, and Vaux appointed as the beneficiary.
[11] During the period March and April 1998 the trustees, namely Anthony, Meredith and Fearnhead as well as the donor, Julian of the one part and Vaux, Michael Wilfred Adcock ("Adcock") and David Allan Austin ("Austin") of the other part, entered into a written agreement in terms whereof Vaux, Adcock and Austin would be substituted as trustees in place of Anthony, Meredith and Fearnhead, and Vaux as well as his son Clifford Harold Vaux ("Clifford") be substituted as income and capital beneficiaries in place of Anthony, Meredith and Virginia.
[12] Anthony, Meredith and Fearnhead resigned as trustees in writing on 11 February 1998 subject to the proviso that their resignation takes effect one day after Vaux procures a loan of R1 700 000,00 from Standard Bank, and the registration of a bond on the property in favour of Standard Bank.
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[13] Anthony, Meredith and Fearnhead further resolved in writing that upon the registration of the aforesaid bond, that the trust accepts their resignations and Vaux and his nominees be appointed trustees.
[14] The net effect of the aforesaid events is the following:
Vaux offered to buy the property from the trust for R1 900 000,00. This offer was accepted and an enforceable agreement came into existence.
The parties to the above purchase and sale agreement terminated the agreement by the way of a cancellation agreement.
The same parties who agreed to cancel the agreement entered into an agreement whereby Vaux and Clifford Vaux became the income and capital beneficiaries and Vaux and his nominees became the trustees. Anthony, Meredith, Fearnhead and Julian agreed to this.
Vaux procured a loan of R1 700 000,00 from Standard Bank against the registration of a bond as security to discharge the loan payable by the Trust to Julian in part, Anthony and Cheel Investments (Pty) Ltd in full. Vaux accepted the cession by Julian of the balance of his loan and then paid the sum of R200 000,00 to Julian.
Vaux thus caused payment of R1 900 000,00 - equal to the purchase price of the property - to the creditors of the trust and
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acquired the right to the balance of the loan owed to the donor, Julian.
ASSESSMENT
[15] On 4 December 2002 the respondent claimed payment of transfer duty in the amount of R341 639,75 from the trust on the premise that transfer of the property took place, and that this constituted a transaction as contemplated in section 1 of the Transfer Duty Act, 40 of 1949 ("the Act").
[16] The respondent claimed transfer duty calculated at 10% of R2 397 472,00 in terms of sections 2 and 5 of the Act, as well as a penalty of R101 892,56 in terms of section 4 of the Act.
THE GROUNDS OF OBJECTION
[17] On 17 April 2003 the appellant objected to the assessment and its grounds of objection and submissions of law may be summarised as follows:
The trust is a discretionary trust as far as the employment, allocation and distribution of both the trust income and trust capital are concerned;
the trust fund vests in the trustees whilst the beneficiaries have no claim to the trust property;
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during the course of 1995, the trust acquired a residential property at a cost of R1 348 451,00;
the acquisition of the property and subsequent costs incurred by the trust were funded by way of loans;
no transfer of property took place;
no transaction as envisaged by section 1 of the Act took place;
there must be a "transaction" involving "property" for a liability of transfer duty to arise;
the appellant relies on the old definition of "transaction" before it was amended by the Revenue Laws Amendment Act, No. 74 of 2002;
thus it is contended that no transfer duty is payable as the property remains in the name of the trust.
THE GROUNDS OF ASSESSMENT
[18] The respondent's grounds of assessment may be summarised as follows:
The Commissioner is of the view that the agreements concluded between the outgoing trustees, namely Anthony, Meredith and Fearnhead and the incoming trustee, namely Vaux and his nominees, seen collectively, constitute a transaction as contemplated in the Act and therefore transfer duty on the value of the property is payable.
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The respondent is of the view that the agreements referred to above, viewed holistically constitute a scheme tantamount to the disposal of the property to a new trust clearly with other trustees and beneficiaries. The substitution of the beneficiaries brings about the situation in which the first beneficiaries, namely Anthony, Meredith and Virginia ceded their vested rights to new ones, namely Vaux and his son...
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