Early Accrual Of Income In Respect Of Property Developments | 14 March 2019

Posted on: March 14th, 2019 by STBBSiteOwner

The Supreme Court of Appeal has handed down a decision which results in the receipt of a guarantee to secure payment of the purchase price of immovable property, being deemed an accrual of the entire purchase price on the date on which the sale agreement was concluded.

We believe that the decision is wrong and have taken senior counsel’s opinion on the matter. Senior counsel agrees with us and, following his advice, we have amended several standard clauses in our development sale agreements to counteract the effect of the judgment. For our clients who are contemplating developments or are in the early stages of such developments, we urge you to contact our offices to ensure that your sale agreements are properly structured .

For our clients who have already received guarantees to secure payments, we urge you to consult your auditors to discuss steps that will reduce your tax exposure arising from the decision. To the extent that the guarantees were received in the same tax period as the conclusion of the agreements, there should not be any adverse consequences. To the extent, however, that the agreements were concluded in an earlier tax period than the period within which the guarantees were received, we believe that the decision will have an adverse impact and clients should explore claiming all available allowances against such deemed accrual of income.

The court held that the consequences of its decision should not extend to Capital Gains Tax as the Eighth Schedule of the Income Tax contains its own rules relating to the receipt and accrual of capital income.

Similarly, the VAT Act contains its own time of supply rules and the decision should not impact on those at all.

Contact your STBB attorney for assistance.

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