The Commissioner for the South African Revenue Service issued a directive on 10 December 2009 entitled Transferring A Residence from A Company or Trust to A Natural Person: Exemption In Terms Of Section 9(20) Of the Transfer Duty Act, 1949). Read more
This means that individuals who own their private dwelling in a trust, company or a closed corporation (CC) will have until 31 December 2012 to transfer the immovable property into their own name without having to pay transfer duty, and to obtain capital gains tax (CGT) roll over relief and exemption from transfer duty and Secondary Tax on Companies (STC).
The following requirements must be met to qualify for the rollover relief:
· The disposal of the residence must take place before 31 December 2012;
· The natural person acquiring the residence must be a connected person in relation to the CC, company or the trust (qualifying natural person). For example, a beneficiary of the trust or a shareholder of the company or a relative in relation to the aforementioned persons.
· The qualifying natural person must have used the residence mainly for domestic purposes.
· Within six months of the date of disposal, certain prescribed steps must be taken to terminate the corporate existence of the company or revoke the trust.
Consequences of the transfer to an individual:
· There are no capital gains (CGT) consequences for either the qualifying natural person or the CC, company or trust;
· Any capital gain or loss upon disposal of the shares in the company or interest in the trust is disregarded;
· The company or trust will be deemed to have disposed of the residence at the base cost;
· The base cost of either the shares in the company plus the cost of any subsequent improvements or the base cost of the residence in the company or trust is rolled over to the qualifying natural person;
· No transfer duty is payable in respect of the acquisition of the residence by the qualifying natural person. Also, no secondary tax on company (STC) is payable by a company provided the residence is distributed as a dividend in specie.
Although the rollover relief benefits a person wanting to transfer the primary residence into his or her own hands to qualify for the primary residence exclusion, it is important to note that this relief might not be beneficial to trusts or companies that own other significant assets apart from the residence, as the rollover relief is not applicable to the disposal of any other assets.
Therefore, the consequent tax liability arising as a result of terminating the company or trust which has other high growth assets must be weighed up against the benefit of holding the residence in the name of the natural person.