Transfer Tax has been slashed

Transfer Tax has been slashed

So why are you still paying a 10% deposit?


Wednesday, July 17, 2019

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The minister of finance and the public service recently approved a reduction in the Transfer Tax payable on the transfer of real property – from five per cent to two per cent.

This reduction took effect on April 1, 2019 along with a reduction in the Stamp Duty payable on such contracts from four per cent to a flat fee of $5000.

Given these reductions, it is more than timely to revisit the question of what is a reasonable deposit under a realty sale agreement.


A deposit has been described as “an earnest to bind the bargain”, or a guarantee to execute a sale.

An earnest is a sum of money paid by a buyer at the time of entering an agreement to indicate his intention and ability to carry out the agreement.

This earnest is applied against the purchase price and generally the terms of the agreement will provide for the vendor to keep and forfeit this sum, without having to prove he suffered loss, if the buyer breaches the agreement.

The threat of the vendor keeping the deposit assists in preventing purchasers from making frivolous bids and retracting them at the expense of the vendor. The deposit under an agreement must be carefully outlined because if the deposit amount is found to be unreasonable, the court may determine that the amount is not a deposit but rather a penalty, which cannot be forfeited as described above.


In the case of Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd it was expressed by the court that a payment of 10 per cent of the purchase price was a customary and reasonable deposit.

Following that case, any deposit in excess of 10 per cent would most likely be construed as a penalty, which is unreasonable to forfeit.


The Transfer Tax Act requires at least a 7.5 per cent deposit. Section 18 (4) of the Transfer Tax Act states that every contract that attracts Transfer Tax on the sale of real property shall require, as an implied term of the contract, a deposit of not less than 7.5 per cent in lieu of the contract requiring a lesser deposit or no deposit.

The section also goes on to say that the purchaser should pay this amount to Tax Admistration Jamaica (TAJ) directly, something which is not done in practice in Jamaica.

Though non-compliance with this section of the Act is an offence, it does not seem that this section of the Act is enforced by the TAJ since in practice, and by virtue of the Stamp Duty Act, the vendor or his attorney-at-law ordinarily pays the taxes payable on the sale from the deposit received within 14 days of the said taxes being assessed by the Stamp Office.

It is also noteworthy that at the time this section of the Act was passed, Transfer Tax payable on a sale was charged at 7.5 per cent.

On a purposive reading of this section, one could argue that the intention of the law was to ensure that all agreements, at the very least, required a deposit equivalent to the Transfer Tax payable on the sale, and that this section has simply not been amended to coincide with the changes in the rate of Transfer Tax over the years.


The reasoning that the Transfer Tax Act requires the deposit to at least cover the Transfer Tax payable on the sale has led some persons to argue that vendors may now accept deposits of as little as three to five per cent, which is not so.

It should be noted that before the most recent reduction in the rate, Transfer Tax was charged at five per cent while the custom was still to require a deposit of 10 per cent.

Persons have also speculated that 10 per cent was logical and customary because it was enough to pay the Transfer Tax at five per cent, the Stamp Duty at the old rate of four per cent, and the Registration Fees at the NLA of 0.5 per cent.

Extending that premise, some persons are of the view that deposits of between three to five per cent are reasonable as that amount will cover Transfer Tax at two per cent, Stamp Duty at $5,000 and the Registration Fees – which remain at the same 0.5 per cent. Note that in the Dojap case, the court's determination that 10 per cent was a reasonable deposit had nothing to do with the amount of taxes payable on the sale.

So how then are purchasers sometimes required to pay more than 10 per cent on signing the agreement?

Despite the reduction in the taxes payable on agreements for sale, a deposit of 10 per cent is still regarded as reasonable and customary. That is not to say, however, that under the principle of freedom of contract the vendor cannot agree with the purchaser to accept a lesser deposit, provided it is not less than 7.5 per cent of the purchase price.

Following the Dojap case, and for fear of rendering the deposit under an agreement incapable of being forfeited, all agreements tend to require a deposit of 10 per cent, which may or may not have to be paid together with a “further payment” towards the purchase price on the signing of the agreement.

This “further payment” is a sum agreed to by the vendor and purchaser under their freedom to contract. A vendor could therefore require the purchaser to pay any amount on signing the agreement over and above 10 per cent, once the purchaser is willing to agree.

Where an agreement contemplates a “further payment” in addition to a 10 per cent deposit, that amount, unlike the deposit, cannot be forfeited. Only the deposit of 10 per cent will be forfeitable in such instances.

A competent attorney-at-law is always useful in negotiating the deposit and further payment payable under a realty sale agreement. Each agreement and the circumstances of the transaction are unique and require due consideration on a case by case basis.

Gabrielle Grant is an associate at Myers, Fletcher & Gordon in the Property Department. She may be reached at or through the firm's website This article is for general information purposes only and does not constitute legal advice.

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