Outcomes
At the end of the lesson students would be able to:
- Explain taxes payable on transactions affecting land (consent fees; stamp duties; and registration fee) and other forms of taxes payable on property (such as tenement rate; personal income tax)
- Explain and discuss the requirement for capital gains tax on a property, and the rate
- Discuss ethical issues arising from breach of the RPC in connection with property.
Contents
- Capital Gain Tax
- Taxes arising from transactions affecting land (sale of land; mortgage of land; and long leases)
- What is stamp duty and who pays it?
- Nature of personal income tax and tax clearance certificate
- Other forms of taxation, tenement rate, ground rent, consent fees, registration fees
- Ethical issues arising from breach of duty of counsel to client; and duty of counsel to state (RPC)
Taxes are levies imposed by the government on individual or corporate bodies.
Capital gains Tax
What is capital gains tax? – Capital gains tax act. This tax is charged on proceeds of assets disposed by the taxpayer. It is paid upon the disposal of an asset by a taxpayer. If the transaction doesn’t amount to disposal it would not be liable to capital gains tax e.g. a mortgage transaction would not be subject to capital gains tax, but sale of land,lease, compulsory acquisition would be liable to capital gains tax. Note however this doesn’t include a gift, mortgage or re-conveyance.
What is the rate of CGT? - 10 %s 2(1) CGTA
Who pays CGT? It should be the transferor or assignor but in practice the requirement for capital gains tax and issue of its compliance only comes up at the point of perfection and as such it’s the transferee that ends up paying.
What is tax paid on? It is only paid on the gain actually made and not the price/consideration obtained for the property. So e.g. if the person spent money defending the title this would be deducted from the consideration before tax would be paid on the remainder.
Payment of ground rent should be one of the allowable expenses because it was paid to preserve the title
Computation –
Stamp duties
What is stamp duties? It is governed by the stamp duties act. It is a different form of taxation because it not tax paid on transaction but tax paid on document.
What is the rate of computation of stamp duties? There are two ways a stamp duty is calculated. 1) Flat fee e.g. deed poll like a power of attorney 2) Ad valorem – this means according to value, the higher the value, the higher the amount that would be paid for on stamp duties. In Lagos state its the assessed value of that transaction, the blue book is used. This blue book has assessed the value of properties in different locations in Lagos. So in Lagosits not based on the consideration given but the assessed value of the property. Lease, mortgages and assignment, sale are computed ad valorem.
Where the transaction is between two individuals it would be paid to the state through the State Board of Inland Revenue but where you have a corporate body involved in the transaction it is paid to the federal government though the Federal Inland Revenue Service.
Who pays stamp duties? The person perfecting is the one who pays.
Effect of non-payment?1) The document would not be admissible in evidence and 2) the document would not be accepted for registration. It should be paid within 30 days.
A document is to be stamped as soon as it is executed. For a deed, it is executed when it has been delivered. Thus a deed which has not been delivered cannot be stamped.
For instance, contract of sale is executed when it has been exchanged.
Payment of stamp duty is to be done within 30 days of the execution of the document, and failure to do so within time would result in payment of penalty
Value Added Tax
Nature of VAT - Tax paid on service rendered and domestic supply of good. Some professional services can issue VAT e.g. Legal practitioners. VAT should be remitted to the government after being paid.
Who is a VATable person? A person that trades in VATable goods and they include legal practitioners
What is the rate of VAT? 5 %
VAT is not paid on incidental or out of pocket expenses, it is only paid for services rendered.
Personal Income Tax
Its pay as you earn, so the more you earn the more you pay. It is paid to the state of residence. It is usually paid at the end of the month and it’s deducted at source.
The evidence of payment of personal income tax is the Tax clearance certificate. In Lagos states it serves as the key to many doors.
Personal income tax can be computed where a person is not a salary earner, it can be computed for housewives, mechanics etc. and the evidence of payment is still the tax clearance certificate.
Companies Income Tax
Land use charge
This is an umbrella term for other charges e.g. tenement rates
Estate duty
This is paid on the value of the estate of the deceased persons. It is computed at 10 %
Others taxes
Consent fees, registration fees, land use charge (Lagos) etc.
The bill of charges of a legal practitioner should contain particulars of principal items and one of these should be stamp duties paid to FIRS or State Board of Inland Revenueor other taxes.