As the inland schools break up this week, many of our upcountry readers will no doubt be heading for a midyear break to escape the Highveld cold – or just the pressures of their busy schedules.

For many, we know, this period is often also seen as a good time to scout for holiday or investment properties, especially at the coast – and increasingly, away from the traditional tourist “hotspots” of the Western Cape and KwaZulu-Natal.

Indeed, the current focus of attention for such buyers seems to be the Eastern Cape, which offers warm seas and great beaches, fabulous scenery and plenty of malaria-free game viewing – as well as competitive property pricing that creates plenty of margin for profit as values rise. And rise we have no doubt they will, as Coega and other infrastructure projects in the region take off, industry increases and clever marketing by the local tourism authorities draws more and more locals and foreigners to discover this “hidden gem”.

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As the Nedbank PA Group Property Professional awards for 2005 were presented recently, we were very proud to watch two members of the Chas Everitt International family collect Young Lions accolades.

These independent awards are made to recognise meaningful contributions made to the industry by its younger members, and to acknowledge their leadership potential.

At 25, Rali Mampuele, the Chas Everitt International franchisee in Midrand, was this year's youngest Lion. He was recognised for his vision in setting up a foundation to assist members of historically disadvantaged groups to pursue careers in real estate - and at the same time illustrating how profitable the field can be by leading his own franchise to a R100-million plus turnover in its first year of operation.

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As demand dictated the proliferation of new estates and sectional title developments over the past few years, many people were seen to be making “easy” money as they snapped up stands or units off-plan – often paying just a small holding deposit – and resold these at a handsome profit just a short while later.

But, says Paul Nelson, director of Johannesburg-based auditing firm Nelson Financial (www.nelsonfinancial.co.za), nothing is that “easy” and such gains are subject to tax.

“The effective rate of tax to be paid depends on whether the intention of the individual was to acquire and sell the property to make a profit (income), or to acquire and employ the asset – by renting it out, for example - to earn revenue (capital).

“And a lower rate does apply to transactions which are capital in nature. It is therefore not surprising that most of these transactions will probably be disclosed as having being capital in nature.”

However, he points out, there have been key decisions in the courts that provide objective tests to determine the intention of the individual. These include the frequency of similar transactions, the length of time for which the property was held, documentary evidence and under what circumstances the asset was realised.

“And SARS will apply these tests when considering the representation of the individual to determine which rate of tax should be applied.”

If it applies the higher rate and you don't agree with its decision, you will have 30 days from receipt of an assessment to lodge an objection but, Nelson notes, the onus of proof that the transaction was not entered into in a scheme for profit-making will then lie with you.

“Considering this, if you bought three stands at an up-market golf estate and resold all three shortly after taking transfer, making a tidy sum in the process, you should consider consulting a reputable tax consultant or accountant before simply deciding to declare the proceeds as being capital in nature.”

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