Property owners now only have one month left to set in motion the tax-free transfer of any residential properties they currently hold in legal entities such as companies, close corporations and trusts into their own names.
“After 31 December 2012, they will be liable for the usual transfer duty and Capital Gains Tax (CGT) on any such transfer,” notes Berry Everitt, MD of the Chas Everitt International property group.
The current tax-free window, created by the SA Revenue Service (SARS) in 2010, applies to all residential properties that have been mainly used for residential purposes since February 2009. It thus includes holiday homes and homes owned by foreigners who only live in SA part of the time but not, for example, residential properties that have been converted to office use.
The legislation enabling the tax-free transfers also provides that the individual to whom the property will be transferred must already be “connected” to it in some way. In other words, they must be a member of the close corporation that owns the property, a shareholder of the company that owns it, a beneficiary of the trust that holds it, or an immediate relative of any of these people.
“And in by far the majority of cases, it will really benefit those individuals financially to take advantage of this tax-free concession period,” says Everitt.
Since December 2002, he explains, SARS has held that the sale of a legal entity which owns immovable property is actually deemed to be the sale of that immovable property, and that the purchaser has to pay transfer duty.
“So there is now no advantage at all for a buyer in acquiring a legal entity instead of buying the property directly. And as far as the property seller is concerned, it should be noted that a company, close corporation or trust does not have the advantage that an individual has of being exempted from paying Capital Gains Tax on the first R2m worth of capital gains on a primary residence.
“What is more, companies and close corporations pay Capital Gains Tax at a higher rate than individuals, and have to pay Dividend Tax at 15% when monies are distributed to shareholders or members.”
In short, he says, SARS has provided a golden opportunity for many taxpayers to restructure their affairs and reduce their tax liability as it relates to the ownership of property, and they should be sure to seek professional advice as soon as possible and put the necessary transfers in motion before the end of December.