across the bar

Extended tax relief for residential owning entities

by Nicci - Posted 09 October 2010

From 2002, the transfer of a residential property entity was treated by SARS as being equivalent to the transfer of a residential property, i.e.:

-transfer duty was payable by a purchaser buying a property owning CC or Company; and

-the Company was subject to tax on the transfer (Capital Gains Tax and Secondary Tax on Companies).

In 2009, SARS gave taxpayers relief from transfer duty in terms of which residential properties bought by the entity, including Trusts, could be transferred out free of CGT, STC and transfer duty.  An example is a Company which bought a property and its sole shareholder lives in it as his primary residence.  The purpose of the amendment was to eliminate unnecessary CC's, Companies and Trusts, when the sole asset owned by these entities is the residential property.

SARS has now extended the relief (Paragraph 51A to the 8th Schedule) with effect from 01 October 2010 and the extension applies to disposals of property made on or after that date and before 01 January 2013.

The requirements are:

a)the disposal must take place before 31 December 2012;

b)the residence is mainly used for domestic purposes by a family member who has ordinarily resided in the residence from 11 February 2009 to the date of disposal;

c)within six months of the disposal, the CC, Company or Trust must be liquidated, wound up or deregistered.

What happens if new shareholders buy the entity after it has bought the residential property?

Shareholder no. 2 will be allowed to transfer the property in terms of the new provision, provided:

a)that the property is the biggest asset in the entity; and

b)that 90% of the value of the shares is attributable to the value of the property.