In a typical example of how the government could be losing thousands of dollars through tax evasion, the High Court in Bulawayo, recently heard the case of a company that intended to purchase a property in Binga for $450 000 but would reflect a purchase price of $300 000 while the remainder was to be paid in cash “under the table.”
The deal backfired when the seller was offered $500 00 cash by another buyer, but he was still taken to court to show cause why he should not sell to the company which engineered the deal and had entered into an agreement of sale first.
Newport Investments had entered into an agreement to purchase stand 110 in Binga with Enzo Rossi. Biffen for Newport Investments offered a package of $400 000 which was to be paid partly in cash with the balance ostensibly in building work.
It was agreed that should Rossi receive a higher offer he should consult Newport Investments to see if it could increase its offer.
Rossi later received an offer for $500 000 and informed Newport Investments about this. The company said it could only offer $450 000 some of which would be cash and the remainder in building work.
Rossi, however, said he wanted the full price in cash and did not want any building work. Newport Investments said all it could pay in cash was $300 000. There would be no building work in addition to that.
An agreement was later drawn by Rossi’s lawyers indicating that the property was being purchased for $3000 000. There was no mention about the balance and no reference to the building work.
The lawyers were not told about the deal agreed upon through which it would have appeared the property had been purchased for the amount shown yet the remainder was going to be paid “under the table.”
This was only later revealed by Rossi when he sought the help of his accountant who told him the deal was illegal.
Rossi told the court that there was no reason why he would have accepted an offer for only $300 000 , which was even lower than the original offer from Newport Investments, when he had one for $500 000 if he had not been given such an offer by Newport Investments.
He said Newport Investments had suggested that $150 000 would be paid under the counter to save him form capital gains tax. Rossi would also show materials (supplied by Newport Investments) as having been used on improving the house and this way he would benefit from having to pay less transfer duties and he would obtain tax advantage as Binga was declared a growth point.
He understood that at the end of the day he would receive $400 00 in cash or in kind. Rossi said at the time he did not understand the implications. When he received an offer for $500 000 and he was told by Newport Investments they could only afford $450 000, Rossi said he consulted his accountant who advised him the deal with Newport Investments was illegal as it was an attempt to evade tax. It was then decided he would have nothing to do with the Newport Investment offer.
Newport Investments denied they had tried to cheat the fiscus through tax evasion saying the arrangement was that part of the payment would be by way of material and work and the split would be half of each.
Judge Cheda, however, said this could have been the case as there was no mention of this in the agreement.
He said looking at the picture as a whole, Biffen, for Newport Investments, wasn’t being truthful and could not be believed. He found that Biffen offered to buy the property, initially for $400 000, but wanted to reconsider this offer if Rossi got a higher offer.
Rossi got a higher offer of $500 000 and advised Biffen. Biffen raised his offer to $450 000 of which $300 000 would be cash and the rest in the form of building work. Rossi insisted that the total price be in cash.
Biffen said he could only pay $300 000 which was to be on the agreement of sale and the difference could be paid secretly to evade tax and result in some illegal advantage to both parties.
The agreement was drawn but the lawyer who drafted it was told the truth about the sale agreement.
Rossi then took advice on the matter, and after being told of its illegality pulled out of the agreement out and accepted the offer form another buyer, Colin Gillies, for $500 000.
Biffen now wanted to enforce an illegal agreement. Since the agreement was illegal, Judge Cheda said, it would not be enforced therefore Newport Investment’s petition was thrown out with costs.