Ministry ‘challenged’ by stamp duty collection
(CNS): The planning ministry has admitted that it is struggling to collect stamp duty due on rental properties, describing enforcement as a “key issue”, and that most of the fees they collect come from lawyers acting on behalf of client companies who are under a fiduciary duty to comply with the law. Following concerns raised by local lawyer Peter Polack about the failure of government to collect on rental leases and indications that senior government workers may not be paying their fair share, ministry officials said that there was no way to know if public servants were dodging their rent taxes.
Responding to enquiries by Polack about the failure to collect stamp duty, Jon Hall, the chief valuation officer of the Lands and Survey Department, said they were “acutely aware of the duty collection issue” and described an incredibly time consuming attempt at collecting the tax under a ‘Stamp Duty Chase’ programme for commercial leases, which started in 2009.
“This somewhat laboriously involved writing to all business listed in the Yellow Pages, starting from letter ‘A’, requesting they provide evidence for the basis of occupation of their premises. This was a proactive collection strategy aimed directly at business premises,” Hall said.
While the cold calling had resulted in a significant increase in collection levels (see below), the programme has been temporarily suspended due to a lack of resources, the official stated.
Despite the high penalties for non-payment and a shared obligation on the lease-parties to present their leases for stamping, under the law enforcement of payment of stamp duty on residential leases “is challenging, to say the least”, Hall said.
The valuations chief said the department was considering the idea of ‘rent-banding’ to make landlords responsible for payment of residential leases because tenants are transient while landlords are easier to identify. He noted that this could push up rents but would improve revenue payment.
Hall said that a wide-ranging policy review of the present Stamp Duty Law is presently underway involving the Valuation and Estates Office, the ministry of finance and the legal drafting section, and their proposals would be presented to the ministry for consideration as soon as all the details have been finalised, including reference to duty on leases.
Disappointed by the response from government about missing out on the collection of revenue, Polack pointed to the inequity that poor enforcement in government is causing.
“Police are arresting Caymanians who are unemployed or unable to afford car insurance, electricity or other portals to poverty,” he said. “The poor and the powerless fill Northward (prison) to the brim while the powerful go unchecked in their open breach of the Stamp Duty Law, depriving the Cayman Islands of necessary revenue. People who have paid fines for minor offences have to wait many years for a clean police record, while those in breach of the law merrily travel about without a care. The electorate should retain these events in their collective memory for the 2017 election.”
The current rates of duty are 5% of the annual rent on leases up to 5 years, 10% on leases up to 10 years, 20% on leases up to 30 years, with leases over 30 years treated the same as a freehold. The vast majority of all leases will fall in to the 5% duty rate.
According to the ministry, stamp duty collected on all leases from 2009 – 2015 are as follows:
2009 – $1.524m
2010 – $353k
2011 – $403k
2012 – $438k
2013 – $423k
2014 – $551k
2015 – $1.344m
Category: Government Finance, Politics
Change the law for businesses only and enforce it for them as it is easier to enforce. It will be impossible to charge for private tenants. Even if you look on work permit applications. What about Caymanians that rent? What about expats that rent short term only and have moved 4 times in a year? The address on the work permit form is no longer valid. What about places that rent month to month? How to enforce that?
Government needs revenue. I do understand that. How about looking at the bleed of money going out? If you don’t focus on where money is spent, you will never have enough. No matter how much revenue is brought in.
only expats are required to obey the rules
Many of the developers resort to renting the properties they built when they can’t get them sold.
I believe Mr. Pollack and Mr. Hall are confused in their interpretation of the law. Just as the purchaser is responsible for paying the stamp duty on a piece of land, it would be the RENTER that would be responsible for paying these lease stamp duties. So enforcing this would put more burden on the poorer people of the country. And increase the already high cost of living here…. I guess a payroll tax is next??
I’ve been here 25 years. Have been aware of this stamp duty on leases from the beginning. Have never once been charged. And it hasn’t been mentioned to me in about 20 years until now in this article.
Which basically only really means that the lease is not legally enforceable unless the duty has been and stamped as such on the contract.
But please correct me if I’m wrong…
your 100% correct stop paying right away and sue for collecting rent that was not legally collected
This is the thinking of the famous University of Made Up Law? Because you are talking nonsense.
The only effect is that the lease could not be relied on in court to show the existence of a debt until it is stamped.
“23. Subject to the Evidence Law (2011 Revision), no instrument shall be
rejected as evidence in any court or legal tribunal by reason only that it is
unstamped or insufficiently stamped for the purpose of this Law…”
You just need to pay up (plus a fee) and it becomes enforceable.
So you are suggesting now that we pay stamp duty buying a property, pay stamp duty on the insurance premium for the having a property, then pay stamp duty again for renting the property. We are on our way to creating more of a divide in society….very rich or very poor.
Well, you could ask your government to introduce income tax. Why not? The money has to come from somewhere.
I’m going to make a stab in the dark at how bad the situation is, ignoring comercial rents, there are about 25,000 people here on a permit, let’s say the average rent per person is about 12k/year, that equates to $15mio due in stamp duty. Half the estimate to $500/month/person in rent and the amount you expect collected is still $7.5mio, add in commercial rents…vs $1.344mio actually collected.
One of the biggest landlords is on the T&B I wonder if she pays on all of her rental units or will she just say they belong to a corporation and not her responsibility
I don’t quite understand why Mr. Hall or anyone else from the Lands and Survey Department/Government is suggesting that landlords are liable, or equally liable, with tenants to register leases or pay stamp duty? An excerpt from the Stamp Duty Law (2013 Revision) is below:
“Time for stamping of instruments
20. (1) Subject to this section, an instrument which is required to be stamped shall be stamped at the time of its execution.
(2) An instrument chargeable with ad valorem duty which is not referred to elsewhere in this section shall be stamped or presented for adjudication at any time before the end of the period of forty-five days beginning with the day on which-
(a) it is first signed or, if first signed outside the Islands, it has first been received in the Islands following that signing; or
(b) if held in escrow following that signing or receipt, the last condition is fulfilled in respect of which the instrument was so held.
(3) In respect of any conveyance or transfer of land, strata title or interest therein the TRANSFEREE (MY EMPHASIS) shall ensure that the relevant instrument shall-
(a) upon conveyance or transfer be duly and fully completed in accordance with its terms and, in the case of a transfer prepared pursuant to the Registered Land Rules (2003 Revision), signed by the transferor and the transferee and certified as provided by the Registered Land Rules (2003 Revision); and
(b) cause the same to be stamped or presented for adjudication, in the case of a transfer prepared pursuant to the Registered Land Rules (2003 Revision), at any time before the end of the period of forty-five days of its signature by the transferor, and in all other cases within forty five days of the disposition or first disposition of the land, strata title or interest effected by or under that instrument.”
A lease is an “interest” in land, so it seems to me that the tenant would be responsible for paying stamp duty as he/she is the transferee.
While that may be the case, as with corporate service providers/law firms etc. stamp duty is usually applied by the service provider/firm to deeds, agreements etc. and charged back the client, because they know it is a requirement under the law. So one could understand why Mr. Hall would suggest approaching the Landlords, and also why he stated that ” this could push up rents..”, because they (Landlord) would charge it back to the tenant.
Just make the tax rise 5% as against the landlord every six months it is not paid and that the unpaid tax operates as a charge over the property. Then outsource enforcement to a local law firm. The cash will then pour in.
Properly structured this stamp duty can be completely avoided. Which is ironic.
The sad part is that a lot of Caymanians built houses and apartments for rent on borrowed money and now they are losing their properties because of non rental of those properties. To make those landlords responsible for paying the stamp duty when they finally get tenants – will finish wipe them out. As for businesses most commercial rentals are to small business who are barely surviving as it is. To further burden them should finish them off.
I believe the implementation of this law started during the UDP administration when the leaders were doing a lot of jet setting and giving away a lot of concessions to their rich friends – so they needed to further tax the poorer people to support their extravagance.
PPM – Just go ahead, force the poor people to pay more taxes and continue giving concessions – the next election is just around the corner…
Why is this being raised. Is it so that government will tax it’s people even more. The government has made a good decision in not wasting time trying to collect a tax that is almost uncollectable
Its being raised because certain people have a mad-on for the government in general and the DPP / Legal Department in particular for prosecuting their family for breaking the Law. So they are on a vendetta to find every example where they feel the Government did not enforce the Law to the fullest extent possible, i.e., ‘incompetence’. – If you get caught up in their vendetta, well, they don’t care. So I hope we’ve all paid our renters stamp duty.
Our generous government are quick to give duty concessions to the rich developers. Because of this we do not have the funds we need to run the country, Now because of the generosity the little people will now be enforced. More4 burden on the common folks whlie we bend over backwards to please the rich.
Bear in mind, these rich developers you refer to are often the ones renting the most properties. Is stamp duty being paid on leases with them?
Yes, they are. I am a Dart tenant and I wrote a check for stamp duty on my lease. Either enforce the law or change it.
There was no suggestion that DART was not obeying the law. They do appear to consistently and diligently obey all Cayman laws. They probably feel pretty alone in obeying many of them, though.
The ministry’s response is weak. were there the political will it is easy to tie all of this to the Trade and Business Licensing Law and require evidence of payment of stamp duty in relation to everyone acting as a landlord as part of the renewal of their licences. Oh wait, you don’t know who the landlord are and yet you have a public registry of who owns what units, an immigration system that requires full details of landlords to be provided as part of work permit renewals, and everyone and their mother advertising apartments for rent on ecay and VRBO, and professional agents acting as intermediaries on others.
It all appears that this lack of enforcement is intentional. Yet again, we see that Cayman laws only apply to those who volunteer to be bound by them.