Monday, July 21, 2008

Selling Real Estate in Jamaica - Transfer Tax

Today I received a telephone call from an officer at the Stamp Office reagrding a contract for sale of property (land only) in Red Hills. The officer wanted to visit the property for the purpose of determining whether the sale price on the contract was reflective of the market value. This is a common practice in Jamaica where the Stamp Commissioner is entitled to look behind the sale price or consideration stated on the contract.

Indeed under the Transfer Tax Act the transfer of land shall be deemed to be for a value equal to the market value whether the property is transferred pursuant to a sale of even as a gift, and the tax is calculated as a percentage of the market value (formerly 7.5%, currently 6%). Some persons seek to understate the sale price and collect the additional amount outside of the contract, in the hope that they will be charged less tax but apart from the obvious risks associated with having to collect money NOT shown on the contract, the Commissioner might not accept the face value and assess tax on a higher amount. This is an issue that must be discussed thoroughly with the attorneys involved.

The Transfer Tax Act clearly states that the transfer tax "shall be borne by the transferor" or the vendor. It is important therefore, that a Purchaser - who is sometimes urged to pay this tax by a Vendor wishing to net more sale proceeds - understands who bears the obligation at law.

While the Vendor does not usually take money out of his pocket to pay the tax, his payment is usually effected as a deduction from the moneys paid by the purchaser towards the sale price. Indeed a 15% deposit is often required from the Purchaser because that amount is enough to cover the stamp duty and transfer tax which are payable early in the transaction.

This is not to say that a Purchaser must close his eyes to whether a Vendor honors his obligation. To further clarify the issue, section 18 of the Act provides that it is the purchaser (being the party spending the cash) who shall pay this tax but as it is really a cost to the vendor it can be deducted from sale proceeds or the Purchaser can even recover it by way of a lawsuit against the Vendor. The latter is important as the deposit out of which the tax is often paid is usually remitted to the Vendor's attorney and if he does not ensure that the tax is paid then a purchaser might have to make his own payment and rely on his right to recover from the Vendor in court.