Court calls stamp duty findings into question

| 01/06/2016 | 0 Comments

CNS Business(CNS): Cayman’s finance ministry may need to review how it assesses stamp duty on property sales following a court ruling that where property is exchanged in an arm’s-length properly marketed transaction at a reasonable market rate, the government had no business re-assessing its value for stamp duty purposes. The recent decision of the Grand Court in what is believed to be the first case heard under the stamp duty appeals rules saw a local land buyer successfully appeal against a stamp duty adjudication by the finance minister that resulted in just a $100 saving but it has raised a significant legal question.

This case concerned the purchase of a parcel of raw land in South Sound for CI$115,000, which was marketed under the CIREBA listing system and bought by a Caymanian and first time property buyer, who was entitled to a concession on stamp duty at the rate of 2% of the sale price rather than the standard 7.5%. He applied to the finance ministry for the concession and provided the purchase agreement, valuation reports and the relevant documents, confirming the current market value of the property. But the professional valuation suggested the parcel was worth CI$120,000 — CI$5,000 more than the sale price — and the duty was therefore calculated on that and not the actual price the man paid.

According to the law, government assesses stamp duty on property based on market value to ensure people don’t try to collude to evade duty by significantly misrepresenting the real price that has been paid. But in this case the buyer believed he paid a fair market price and appealed the ministry’s calculation and won.

In his written judgment, visiting judge, Justice Alastair Malcolm, accepted it was necessary to prevent the avoidance of stamp duty where conveyances of property took place between parties for less than the true market value. But given that this property was properly listed and marketed before the arm’s-length transaction, he said the “best evidence of the true value of real estate is the reaction of potential purchasers and offers made by them.”

Based on previous cases, he found that “estimates in appraisals that are more optimistic than the highest offers received after extended exposure of the property to the market place, must be viewed as erroneous”.

The judge said the true market value of the applicant’s property for the purpose of the Stamp Duty Law was the agreed “arms’-length” sale price of CI$115,000 and ordered that the duty payable be calculated on that sum. Justice Malcolm said that the case raised issues of principle that may well affect other real estate deals, not just first time Caymanian buyer concessions, and whether the historical practice of calculating stamp duty on the basis of professional valuation as opposed to the sale price is right.

Government may now have to look at possible refunds as buyers look to recover what may have been overpayments. In this case, the difference was a mere $100 but the finance ministry may find itself faced with appeals from much more costly transactions where duty has been calculated on valuations rather than sale prices, creating much wider gaps that will be far more painful for the public purse than this possible precedent-setting case.

Tags: ,

Category: Local Business, Real Estate

Please include your email address in the form below if you are using your real name. You can use a pseudonym, with or without leaving an email address, or just leave the form blank to be "Anonymous". All comments will be moderated before they are published. The CNS Comment Policy is at the top of this page.

This site uses Akismet to reduce spam. Learn how your comment data is processed.