Seldom does the South African Revenue Service (Sars) open a tax-free window period, and rarely does it do it twice. So when it announced in a June draft amendment that individuals who own their primary residence in either a company, or a closed corporation (CC) can transfer their property tax free into their own name for the second time it came as a surprise and should be taken advantage of.
The draft amendment is likely to be finalised in the next few weeks, here's the lowdown. All individuals who own their primary residence in either a company or CC can transfer their property into their own name without having to pay capital gains tax (CGT), transfer duty and secondary tax on companies (STC) from January 1 2010 until December 31 2012. This is a huge tax saving of just under 22%.
They can only do this if their domestic residence is exclusively used for domestic purposes, says Mike Teuchert, a tax partner at Grant Thornton. However, "no clarification has been given to the meaning of the term domestic purposes, although it would exclude the situation where a person also uses their residence for the purposes of running a part-time small business", says Teuchert.
Unfortunately the exemption does not apply to those who own their primary residence in a trust, as was the case in the previous window period, however this could change in the final draft, notes Deborah Tickle, a member of Saica's National Tax Committee.
Also if the property is not in your own name you can not take advantage of the exemption.
For those who transferred their properties out of a CC, or company after the 2001 window period and before this new one starts you will not be reimbursed, says Tickle. Of course this exercise is not without costs, says Teuchert. You will still be responsible for costs associated with the transfer of you property, such as conveyancing fees and bond cancellation costs, reckons Teuchert.
So how do you go about transferring your property out of your CC or company? Firstly, you'll have to visit a conveyancing attorney to transfer your property, cancel your bond and register it in your own name. Secondly, you will need to make sure your books are in order and close them off. Thirdly, you will have to fill in a tax return and supply Sars with your latest set of accounts. Finally you will need to deregister your company with the Register of Companies, says Tickle.
Ntombikayise Baepi a senior associate at ENS reckons Sars has provided this second window period to cleanse the Register of Companies of inactive and dormant companies. Tickle says it has also done so to help individuals avoid the high costs of being a registered company when the Companies Act comes into full force next year.
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