Transfer of Properties and Transfer Tax

Transfer of Properties and Transfer Tax

What is Title of a Property (Real Estate)?

The title of a property is the right of ownership of the property. In fact, the title of a property is a set of rights available to the owner of the property. These rights include the right to possess the property; the right to use the property; the right to let out the property; the right to sell the property; etc.
A document that shows that a person has the title of a property is called a title deed. A title deed shows the particulars of a property, including the land area, details of any buildings, nature of its use, its value, the name of the person from whom the present owner got the title, etc.

What is transfer of a property?

Transfer of a property means transfer of its title from one person to another person. For example, when Mr. B buys a property from Mr. A, the TRANSACTION OF BUYING represents TRANSFER.
Therefore,

Transaction of Buying = Transfer

Other transactions which can represent transfer include inheritance, gift, etc.

Who transfers a property?

A person who has the title of a property can transfer the title of the property to another person.

The point to note is that, in the matter of real estate ownership (and in other legal matters as well), a person is not simply a human being. The word “person” includes many entities other than human persons. Examples are companies, trusts, associations of persons, and firms. In the eye of the law, all these are persons and can have title of a property. Hence, they can also transfer title of a property to other persons.

One important requirement for property transfer is that the person transferring the property to another person must have a title of the property. Essentially, the person selling the property cannot transfer a title better than his own title. For example, a person having title of a 2,500 square foot piece of land cannot transfer 2,501 square feet of land.

Where is transfer of a property made?

When a person transfers a property to another person, the transfer is recorded in government records.

A document showing the transaction details is prepared as a copy of record available from the government as evidence of the transfer. This document is called a deed, sale deed, sales deed, registered deed, registry, or registered transfer deed.

When is a transfer of property needed?

Probably the most common time a transfer of property is needed is at the time of the property's sale. This is when a property changes hands; it gets transferred from one person to another person.

Another common time that property transfer is needed is upon the death of a person having title of a property. When this happens, the property becomes property without an owner. Generally, such properties are supposed to be transferred to the legal heirs of the deceased person. However, the transfer does not happen automatically; it needs to be entered into government records by the legal heirs.

Other times of need for property transfers include the need for transfer for the purpose of giving property as a gift, acquiring property for a project, etc.

How costly is a transfer of a property?

The transfer of property is not free; in fact, it generally involves a high cost, which varies directly with the cost of the property or real estate being transferred. The higher the cost of a property, the higher the cost of its transfer.
The cost of transfer is not included in the price of the property under transfer. That is why the total cost to buy a property is higher than the price agreed between the seller and the buyer of the property.

The transaction cost of transfer of a property includes:

1.   Transfer Fee;

2.   Stamp Duty;

3.   Capital Value Tax; and

4.   Other Taxes

In simple equation form:

Cost of buying a property = Price of the property plus transfer taxes
 
This means that taxes add to the cost of real estate for sale.

Generally, a property or real estate is subject to taxes from all three levels of governance in a country, i.e., federal government, provincial or state government, and local government.

Examples of federal government taxes include income tax on rental income arising from a property and short-term capital gains tax arising from sale of property within a short period.

Examples of provincial government or state taxes include stamp duty and registration fees.

Examples of local government taxes include fees for transfer of a property in local records and map fees.

What are the taxes on transfer of a property?

The transfer taxes on a property are collected at the time of the transaction of transfer of the property from one person to another person.

In a simple sense, the transfer taxes are transfer fees that the government collects from the persons getting the property transferred. Common names of these taxes are:

·       Transfer Fee;

·       Registration Fee;

·       Stamp Duty;

·       Notary Fee;

·       Real Estate Transfer Tax;

·       Gift Tax;

·       Gain Tax;

·       Capital Gains Tax;

·       Property Tax;

·       Estate Tax; and

·       Immovable Property Taxes