Tax hit piles on land blues

IT was supposed to be the deal of a lifetime. Instead, a land sale landed a Western Cape businessman in deep trouble with the taxman.

Six years after buying 86ha in Riversdale for R185 000, Andre Marais stood to sell it for a profit of more than R16-million.

But as the value of his property went into the stratosphere, so did his legal costs, tax bills and misery.

Although the deal fell through, Marais now owes the South African Revenue Service more than R3.5-million and might lose the land.

The trouble started when his company, New Adventure Shelf 122, sold the land for R17.7-million in 2006 to a company that wanted to build houses on it.

The deal fell through when the purchaser failed to obtain rezoning approvals, but SARS hit Marais with a capital gains tax bill of over R1.4-million for the 2007 tax year.

When his appeals to the taxman failed he went to court, but the Supreme Court of Appeal ruled against him last month.

Marais told the Sunday Times this week that on top of the capital gains tax, SARS had charged him R1.4-million in interest, and he had incurred R750 000 in legal costs.

But he admitted defeat, saying: “Like the judge said, tax does not need to be fair.”

Property analyst Erwin Rode said the value of land could increase rapidly if it was suitable for residential subdivision.

“But it is very risky to do township development. What if you don’t get the necessary permission? The risks are huge,” he said.

The purchaser of Marais’s land agreed to pay a R1.2million deposit, R1-million on the date of the sale’s registration, and the balance in four instalments.

The deal fell through in 2011 and the property was transferred back to Marais, who kept the more than R4.5-million the purchaser had already paid.

Marais asked SARS to reassess his capital gains tax as he was “never paid the balance of the purchase price”. He claimed that the money he retained was for “damages” and that “no capital gain in fact occurred”.

Diane Lalor, a senior manager of SARS’s high court litigation unit, said in court papers that New Adventure’s 2007 financial statements, signed by Marais, reflected the disposal of the property that year as well as a creation of an “asset in the form of a loan in the sum of R14 680 000”.

Marais failed to object to the assessment within the 30-day period and failed to make payment on the assessed amount and interest, according to Lalor.

“I respectfully submit that the history of this matter justifies the making of a punitive cost order against [New Adventure].

“It has failed, for almost seven years, to make payment in respect of the assessed tax or interest,” Lalor said.

“It has also put up, under oath, what I contend to be patently incorrect and insupportable factual averments.”

The appeal court upheld the high court’s endorsement of SARS’s calculation that “as a result of the cancellation a capital loss of some R7.7-million had accrued to [New Adventure]”.

The ruling said: “In any event, even if in certain instances it may seem ‘unfair’ for a taxpayer to pay a tax which is payable under a statutory obligation to do so, there is nothing unjust about it.

“The tax statute must be applied even if in certain circumstances a taxpayer may feel aggrieved at the outcome.”