Time is running out for those who want to benefit from the window period during which you can transfer your primary residence into your own name in order to avoid capital gains tax.
Now is the time to carefully consider whether or not you should transfer your property from your company or trust into your own name.
Capital gains tax (CGT) came into effect on October 1, 2001. The law includes a provision stating that if you sell your "primary residence", up to R1 million of any capital gain you make will be free of CGT, provided certain conditions are met. One of these conditions is that you own the home in your own name.
But what if you own the shares of a company, or are a member of a close corporation (CC), or are a beneficiary of a trust, that owns your home? If any of the above apply to you, you need to decide whether to take advantage of an opportunity to transfer your home into your own name without having to pay CGT on any growth in the value of the property since October 1, 2001.
This opportunity also enables you to transfer the property without incurring transfer duty, bond stamp duties, and secondary tax on companies if you transfer it as an in specie dividend. An in specie dividend is when the company or CC declares a dividend which is not paid in cash, but rather through transferring the property.
But you need to make a decision very soon: To qualify for the tax concessions, you must apply to transfer the property into your own name before the end of September this year, and the transfer needs to take place before the end of March next year.
If you qualify for the tax-free move, you must carefully weigh up whether or not the saving you will make on CGT warrants transferring the property.
In a CC or company, you pay CGT at an effective rate of 15 percent (in other words, R150 000 on R1 million). In a trust - unless it is a "special" trust - the effective rate of CGT is 20 percent (R200 000 on R1 million). A "special" trust caters solely for handicapped and/or minor children.
If your primary residence is owned by a trust, this arrangement may have estate duty benefits, or the benefit of protecting your assets from your creditors. These benefits fall away if your home is in a CC or company.
And here's another factor for you to consider: Although in terms of the tax laws you may transfer your house into your own name without paying transfer or stamp duty, the transferring attorneys will still charge you their normal legal fees. In addition, your bank will charge you for transferring the bond. These costs should be small in relation to the potential saving, but you need to be aware that transferring your property into your own name will not be completely cost-free.
In an article in the Third Quarter 2002 issue of Personal Finance magazine - which has just gone on sale - Matthew Lester, a professor of tax studies at Rhodes University, considers some important aspects of the options available to you.
In today's article, I consider whether you and your CC, company or trust, may take advantage of the tax-free transfer.
So, do you qualify?
Firstly, you must directly hold all the member's interest in the CC, or all the shares in the company, and must have held them all since April 5, 2001. The interest or shares may be held jointly with your spouse. However, if you alone own the shares, you may not use the tax concession to transfer the home into you spouse's hands.
If your home is in a trust, you must have donated it to the trust yourself, or have provided all the finance to the trust to enable it to buy the house. The South African Revenue Service says you will qualify for the tax concession if a bank has granted the trust a bond, as long as you have provided all the funds to the trust to enable it to make the monthly bond payments.
Thus, if your home is in a trust of which you are the beneficiary and, at any time since the trust bought the home, your employer rented the property and made it available to you to live in (an old fringe benefit scheme that has not been available for some years), you will not qualify for the tax-free transfer.
Secondly, you or your spouse must have lived in the house since April 5 last year, and continue to live in it up to the date on which it is registered in your own names. You must also have used the house mainly for domestic purposes. So, if 50 percent or more of your home has been used for, say, business purposes - for example, as a creche or offices - you will not qualify for the tax-free transfer.
Once you have established that you qualify to transfer your house into your name without paying CGT, you must talk to a tax consultant to find out whether it is to your financial advantage to do so.