What is often overlooked is the fact that the term “property”, as defined in the Transfer Duty Act extends beyond mere brick and mortar to include inter alia a share in a so-called “residential property company”. 

For purposes of making a determination as to whether to not the sale of shares in a company will be subject to the imposition of transfer duty, one must have regard to the definitions associated with the terms “residential property” and “residential property company” as stem from the Income Tax Act read in conjunction with the Transfer Duty Act.

“Residential property” is defined as meaning any dwelling-house, holiday home, apartment or similar abode, improved or unimproved land zoned for residential use in the Republic of South Africa (including any real right thereto), other than:

• an apartment complex, hotel, guesthouse or similar structure consisting of five or more units held by a person which has been used for renting to five or more persons, who are not connected persons, to that person; or 
• any “fixed property” of a “vendor” forming part of an “enterprise” all as defined in the Value-Added Tax Act.
  

The term “Residential Property Company” is in turn defined to mean, other than a REIT as defined in section 1 of the Income Tax Act, a company that holds property that constitutes:

• residential property; or  
• a contingent right contemplated in paragraph (f) of the definition of “property”,

where the fair value of that property or contingent right comprises more than 50 per cent of the aggregate fair market value of all the assets, as defined in paragraph 1 of the Eighth  Schedule to the Income Tax Act (other than financial instruments as defined in section 1 of that Act or any coin made mainly from gold or platinum), held by that company on the date of acquisition of an interest in that company.

In terms of the Transfer Duty Act, transfer duty is payable where an interest (which includes shares) is acquired in a residential property company.

This means, that in order for a purchaser to escape liability as relates to the payment of a transfer duty where shares are acquired in a company, the property owned by that company would have to be:

• an apartment complex, hotel, guesthouse or similar structure consisting of five or more units held by a person which has been used for renting to five or more persons, who are not connected persons; or
• property which forms part of a VAT enterprise; or
• of a fair value which is less than 50 per cent of the aggregate fair market value of all the assets owned by the company