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Tax Update 2009-2010
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For many, many years, those with money registered their residential properties in private companies, closed corporations and trusts. ‘It’s all part of our estate plan,’ they would say at social occasions. And spouses felt like a very big deal when their status was elevated to director or trustee.
But this was all a long time ago in a galaxy far away. The real advantages back then were threefold:
1. The property company could be sold without re-registering the property at the deeds office. That saved time and conveyancers fees. But it confused the hell out of estate agents.
2. Transfer duty was avoided on resale as the transaction was for the sale of shares.
3. No capital gains tax (CGT) or secondary companies (STC) was payable if the property was sold out of the company, followed by a voluntary liquidation / deregistration.
All the juicy tax loopholes were plugged. The owners of property companies / closed corporations now face a lethal cocktail of STC and CGT combined of 22,7 % if the property is sold. In the case of a trust CGT of 20 % can result. And there can be few suckers left who would fall for the yarn of buy someone else’s company / cc / trust.
Back when CGT was implementing there was a short window of opportunity to de-bus these structures. Advisors, keen on retaining their annual fees, shook their heads and so few took up the offer. And they have whined ‘please give me one more chance’ at seminars ever since.
Well, now they’ve got it. But follow the steps closely to see if you qualify:-
1. In the case of companies or cc’s, as at 11 February 2009, were you and / or your spouse the owners of all the shares in the company?
In the case of trusts, were you the person who funded the acquisition of the residence? If yes, proceed.
2. Did you, alone or together with your spouse personally and ordinarily reside in the residence and used it mainly for domestic purposes?
If yes, proceed.
3. Is the registration of the property completed by 31 December 2011?
If yes, you qualify for the tax concessions.
The tax concessions are only granted if the property is transferred to the shareholders or, in the case of a trust, the person who funded the arrangement. So there is no opportunity for a generation-skip in the process.
The tax concessions result in the residence being transferred to the shareholder / financier on a rollover basis for CGT, plus no transfer duty, and no STC. When the property is ultimately sold the full capital gain comes home to roost. But the primary residence abatement of R1,5 million may apply and CGT is limited to 10 %.
Revised Legislation
Transfer of residence from company or trust
1. Where an interest in a residence has been transferred from a company or a trust to a natural person as contemplated in subparagraph 2–
(a) that company or trust must be deemed to have disposed of that interest for an amount equal to the base cost of that interest on the date of transfer thereof;
(b) that company or trust and that natural person must, for purposes of determining any capital gain or capital loss in respect of the transfer of that interest, be deemed to be one and the same person with respect to –
(i) the date of acquisition of that interest by that company or trust and the amount and date of incurral by that company or trust of any expenditure in respect of that interest allowable; and
(ii) any valuation of that interest effected by that company or trust;
(c) no allowance allowed to that company or trust in respect of that interest must be recovered or recouped by that company or trust or be included in the income of that company or trust in the year in which the transfer takes place; and
(d) that company or trust and that natural person must be deemed to be one and the same person for purposes of determining the amount of any allowance or deduction:
(i) to which that company or trust may be entitled in respect of that interest; or
(ii) that is to be recovered or recouped by or included in the income of that company or thrust in respect of that interest.
2. Subparagraph 1 applies where –
(a) that natural person acquires that interest from the company or trust no later than 31 December 2011;
(b) that natural person –
(i) alone or together with his or her spouse directly held all the share capital or members’ interest in that company from 11 February 2009 to the date of registration in the deeds registry of that residence in the name of that natural person or his or her spouse or in their names jointly; or
(ii) disposed of that residence to that trust by way of donation, settlement or other disposition or financed all the expenditure, actually incurred by the trust to acquire and to improve the residence;
(c) that natural person alone or together with his or her spouse personally and ordinarily resided in that residence and used it mainly for domestic purposes as his or her or their ordinary residence from 11 February 2009 to the date of the registration contemplated in item 1. (b) (i) above; and
(d) the registration contemplated in item 1. (b) (i) above, takes place not later than 31 December 2011:
Provided that this paragraph applies only in respect of the portion of the property.
[Deemed to have come into operation on 11 February 2009, and applicable in respect of transfers made on or after that date and before 1 January 2012.]
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