The Draft 2009 Taxation Laws Amendments Bill issued on 4 June 2009 contains a proposal that will allow individuals until 31 December 2012 to transfer their domestic residence out of a Company of Close Corporation into their own name, and receive capital gains tax roll over relief and transfer duty and secondary tax (STC) exemption.
Although similar relief was granted in 2001 when Capital Gains Tax was introduced to allow the transfer of a private dwelling from a Trust, company or CC to the individual owner without incurring transfer duty or STC, the current proposal is narrower than the previous relief in a number of respects.
1. To qualify for this amnesty in terms of the new proposals
- All of the shares or members interest in the entity have to be held by the person residing in the property, or that person’s spouse, during the period from 11 February 2009 until the date the residence is transferred out the entity,
- The residence has to be used exclusively for domestic purposes, that will exclude the situation where a person also uses their residence for the purposes of running a part-time small business, during the above period and has to be the sole asset of the company or close corporation,
- It must also be transferred out the entity between the 1st of January 2010 and the 31st of December 2012,
- The entity (Company or Close Corporation) has to be wound up after the above transfer.
2. Trusts that distribute domestic residence will not qualify for any relief:
The effect of the proposal is that the transfer will be free from Capital Gains Tax (CGT), Secondary Tax on Companies (dividends tax) and transfer duty. The transferee will also be able to benefit from the “primary residence exclusion” from CGT if the residence is subsequently sold for a profit. The transfer will be treated as a “roll-over”, meaning that the transferee will step into the shoes of the transferring entity insofar as the history of the residence is concerned.
Although transferring a growth asset into the hands of a natural person usually leads to an increase estate duty liability, it must be remembered that the only entities that qualify for the relief are those in which the natural persons held all the shares or members interest. Therefore the transaction will be tax-neutral from the point of view of estate duty.
3. When not to transfer your residential property from your Company/CC into your private name:
- The proposed new owner (individual) is running a high risk profile (debts / sureties),
- The proposed new owner has signed sureties for his business debts or for any 3rd party’s debts,
- If the value of the property is likely to exceed R5 million in the next 5 years,
- If the proposed new owner’s private assets (personal estate) will exceed R7 million once the house has been transferred into his own name. Take into account the cover value of life policies here too.
- If you stand to inherit more than R7 million Rand in the foreseeable future.
- If you stand to sell a private asset in the foreseeable future for more than R7m.
- If you plan to acquire a property for R7m or more and register it in your private name.
- Any other planned or instance or acquisition, including new life policies, that will push the value of your private estate over R7 million.
Clients who decide to take advantage of this opportunity will still be responsible for other costs associated with the transfer of immovable property, such as conveyancers’ fees and bond cancellation / re-registration costs.
Borderline cases should weigh up the costs of ongoing accounting, tax and CIPC fees of the trusts / companies / close corporations owning the properties.
You may also contact us to wind up the company / cc / trust after the transfer for you.