Tax Law

Tax law breaks for Homes owned by Companies, CC's and trusts

Until a few years ago and as a result of a “gap” left in the transfer duty laws at that time, many people chose to register their homes in the name of companies, close corporations or trusts. The gap in the transfer duty laws has since been closed leaving many people with little to no reasons for keeping the property in such corporate entities. In fact in many cases there is nothing but disadvantage especially in the field of capital gains tax. As you probably know corporate entities do not enjoy the same capital gains tax concessions offered to ordinary people.

It has not been easy for such owners to undo the corporate entity ownership structure due to the significant cost thereof. These costs would include a number of taxes including transfer duty and capital gains tax.

As from next year the government will be charging an annual levy for the mere continued establishment of corporate entities and in anticipation of the burden which this charge will create, has decided to offer people who are trapped in corporate ownership structures the opportunity to undo the process without facing the tax implications.

Although it is not yet law it is now virtually confirmed that a law will shortly be passed which will give effect to the government’s stated intention.

In a nutshell the proposed laws will apply as follows:

  • Companies and Close Corporations – Subject to the conditions set out below, a company or close corporation which owns residential property may without any tax consequences [including transfer duty and capital gains] transfer that property to a natural person or the natural person’s spouse or to them jointly. The conditions are as follows:

    1.1 The person alone or together with his spouse must have personally and ordinarily resided in that property and used it mainly for domestic purposes during the period 11 February 2009 to the date of the registration of the transfer; and

    1.2 The person or his spouse or both of them must have owned all the shares in the company or all the member’s interest in the close corporation during the period mentioned in 1.1 above.
  • Trusts - Subject to the conditions set out below, a trust which owns residential property may without any tax consequences [including transfer duty and capital gains] transfer that property to a natural person or the natural person’s spouse or to them jointly. The conditions are as follows:
  • 2.1 The person alone or together with his spouse must have personally and ordinarily resided in that property and used it mainly for domestic purposes during the period 11 February 2009 to the date of the registration of the transfer and
  • 2.2 The person must have financed the purchase of the property for the trust. [There are some uncertainties about this last requirement and clarification will have to be obtained from SARS before reliance is placed on this portion of the law].
  • In final summary the above transactions will become possible as soon as the intended amendments are made law [this could occur in the very near future] and must be completed [i.e. transfer registered] by the 31st December 2011. Although no tax obligations will be attracted to the transactions it should be kept in mind that there will be conveyancing fees to be covered. If the property is bonded then the costs of canceling the bond and registering a new one must also be budgeted for. The matter of whether the current bondholder will be prepared to renew a loan to the individual who is destined to become the owner should also not be taken for granted. It now appears to be common cause that the banks are no longer as generous with their loans as they were in the past.
  • Should you be an owner of a property which is registered in the name of a company, close corporation or trust and wish to avail yourself of the unique opportunity that will shortly be available then you are welcome to contact us for assistance. Please bear in mind that it will only be available for the limited period already mentioned.

     

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