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Government gives clarity on short-erm leases and stamp duty   Article Date :10 Apr 2007 Comments from David Warmback of Durban law firm Shepstone & Wylie. The proposed exemption of stamp duty on leases of less than five years in respect of leases signed on or after a certain date this year announced by the Minister of Finance in the budget in February, applies to residential, commercial and retail leases, according to David Warmback of Durban law firm Shepstone & Wylie. Clarity on the exemption and other relative matter has been issued in the form of amendments to the Stamp Duty Act, as contained in the Taxation Laws Amendment Bill published by National Treasury on 28 February. Warmback notes that although the Bill refers to an April 1 commencement date, this has now been overtaken by verbal advice from SARS indicating the start date is likely to be June 1 2007. While short term tenants will be pleased with the proposed exemption Warmback advises careful examination of the other changes and proper assessment of the full impact of the new provisions. “The five year exemption will not apply to leases where the total aggregate of the lease period exceeds five years after accounting for the renewals and extensions. If, for example, a lease of three years has a right of renewal for three years, the duty applies because the aggregate period exceeds five years.” Furthermore, the existing legislation provides that if a lease is for an indefinite period (eg no fixed period but either party has the right to terminate after say three months notice to the other party), then such lease must be stamped for two years. The new provisions provide that it must be stamped for five years, which could incur considerable additional duty than is currently the case. Parties, Warmback says must therefore consider carefully whether to provide for an indefinite period in a lease, particularly if it may be for a short period, although as discussed below, the parties should be able to apply for a refund if the lease terminates before five years. The existing section in the Act, which deals with refunds of stamp duty where leases are cancelled prior to the period for which they were required to be stamped also contains proposed amendments. Currently a proportionate amount is refunded depending on the period between the cancellation and the period of original stamping. As leases under five years will be totally exempt, the proposed amendment provides for a refund in two instances. The first is if a lease is terminated before a period of five years where the total duty is refundable, and the second contemplates a refund of a proportionate amount where the lease is terminated after five years from the date it was concluded. The final amendment proposed in the Bill deals with a cap on stamp duty payable on a lease which will be limited to the maximum rate of duty payable under the Transfer Duty Act, which was 10% of the value of the property and the amendment formally reduces the 10% rate to 8%. This is in line with the previous reduction in transfer duty rates to a similar figure. Warmback says landlords and tenants must continue to apply the existing provisions of the Stamp Duty Act when stamping leases until such time as the new legislation is formally passed which is expected to be with effect from 1 June 2007. CLICK HERE TO RETURN TO THE MAIN NEWS PAGE