Mossel Bay Advertiser | Tax-friendly transfers: the clock is ticking

Translate to:


News	Classifieds	Directory

Tax-friendly transfers: the clock is ticking
13:22 (GMT+2), Tue, 14 August 2012

SOUTHERN CAPE NEWS - Over the past 18 months SARS introduced tax-friendly mechanisms in terms of which taxpayers can transfer residential homes that they hold in companies, close corporations or trusts (entities), to their personal names.

The relevant legislation has undergone many changes since it was first introduced and on 12 January this year further amendments were gazetted and are now effective retrospectively. Here's the lowdown on the current position:

Why?
Many people bought their residential properties in entities because of specific transfer duty and other tax advantages that previously existed for doing so. Since 2002, these advantages were markedly diluted by changes to taxation laws. The introduction of Capital Gains Tax in 2001 and other taxes imposed on companies has generally made it more onerous to hold residential property in an entity.

SARS therefore introduced legislation in which a limited window period has been granted for taxpayers to transfer their homes from entities into their own names, free from Transfer Duty, Secondary Tax on Companies (STC) and CGT.

How does it work?
If a residential home is held in an entity and was used mainly for domestic purposes since 11 February 2009 and up to the date of the disposal; and the resident(s) is a "connected" person(s) to the entity; then the property can be transferred to the natural person without paying the usual Transfer Duty or incurring liability for STC and CGT on that transaction. The disposal must however occur before 31 December 2012 and the entity must take steps to wind up, deregister or terminate within 6 months after the disposal.

Before the amendments gazetted on 12 January 2012 it was practice that the legislation could only apply to primary residences, which necessarily excluded holiday homes and excluded certain foreign resident owners making use of the opportunity. The change now means that, subject to all other requirements being met, holiday homes can be transferred and foreign residents may now take ownership from their property owning entity.

Who are "connected persons"?
The definition in the Act is long and intricate; to simplify, it can be said that a "connected person" is someone who is connected to the property-owning entity as family relation, trust beneficiary, by way of shareholding or holding of member's interest. This opens up the possibility to use this legislation to transfer property held in multi-layered property structures, for example, where the taxpayer owns the property in an entity which is, in turn, owned by another entity.

It might not necessarily be advisable in all cases to transfer a property out of a holding entity and much will depend on a taxpayer's overall tax situation and estate planning concerns. However for many taxpayers this will be an opportunity in which to structure their affairs and reduce their liability for taxes relating to the owning of their residences in entities.

Should you wish to make use of this opportunity or discuss your options, please contact André Swart at Stadler and Swart Attorneys, telephone number 044 874 4090.