If you purchased your property in a Trust, Close Corporation (CC) or Company you have until 31 December 2012 to dispose of that property. The disposal will be to your name or the name of a beneficiary or shareholder without paying transfer duty, dividends tax (DT) or capital gains tax (CGT).
Part of the reason why SARS has given this tax break is that SARS requires the de-registration of the trust, company or CC once the transaction is complete. This then reduces the number of trusts, companies and CC’s in existence and makes SARS’ administration and enforcement of tax compliance somewhat easier. Of course, if your residence is in an entity as part of a long term strategy it may not be in your interest to avail yourself of this opportunity.
When you dispose of your residence CGT is triggered and the CGT is significantly lower if the property is registered in your personal name. The effective rates of CGT are as follows:
For an individual it is 13,3% ( this is assuming that your marginal rate of income tax is at the maximum of 40%). Individuals also get a “primary residence exclusion” of R2 000 000 plus a
R30 000 “annual exclusion”.
For a company and CC it is 18,6%.
For a Trust it is 26,6%.
To further illustrate the above let us take a Capital Gain of R2 000 000 and apply this to the various entities below:
CGT PAYABLE BY THE SELLER
Individual Company/CC Trust
R0 R372 000 approximately R 532 000 approximately
The savings above speaks for itself.
With a trust you may be able to reduce the CGT substantially by having the profits taxed in the hands of a beneficiary with a lower tax burden. A “special trust” created solely for the benefit of a person suffering from a mental illness or a person suffering from a serious physical disability is treated as an individual.
Who Qualifies? Not everyone, so seek professional advice. However, if the property is mainly used for domestic purposes it is a good beginning
If I qualify, will I benefit? One must take professional advice on this and consider estate planning, asset protection, conduiting a trust’s distributions to a beneficiary with a low tax burden
Does my holiday home qualify? Yes
What are the costs? There is no transfer duty payable and the CGT is rolled over. There are conveyancing fees, bond cancellation fees and possibly bond registration fees applicable plus costs to deregister the entity.
How long to de-register the Entity? Six months from the disposal of the residence
Anything else? If there is a mortgage bond registered over the property you must consult with your bank as the bond will be cancelled and a new bond will have to be registered. Be aware of the 90 day notice period to cancel the bond and ensure that the individual who receives transfer will qualify for the new bond and at what interest rate.
There could be significant advantages available to you if you proceed with such a disposal. The deadline looms so act now as after 31 December 2012 the opportunity is lost!!