The first R1 million of the capital gain you make on the sale of your "primary residence" will be exempt from capital gains tax (CGT). But to qualify for this exemption, your primary residence must be registered in your own name and not, for example, in the name of a close corporation. If your primary residence is not in your name, you may want to transfer it into your own name. The government has granted an exemption from transfer duty for such transfers.
Question:
Paula Cohen would like to know if in order to qualify for the exemption from transfer duty, you would have had to purchase the property after the legislation relating to this exemption was introduced, or whether you could have purchased it earlier in a closed corporation but registered it in your own name after the legislation was introduced.
Answer:
SARS says the Taxation Laws Amendment, Act 5 of 2001, was promulgated on June 20, 2001. This means, provided all the other conditions for exemption are met, in order to qualify for it you must:
* Have been the member of the closed corporation from April 5, 2001 to the date the property is registered in your name;
* Have acquired the property from the closed corporation between June 20, 2001 and September 30, 2002; and
* Have the property registered in your name in the deeds registry by March 31, 2003.
Question:
A reader says he was dismayed to learn from attorneys that despite the exemption from transfer duty, their charge to effect this transfer would be about R6 500. "Having bought the property (legally) in good faith in a close corporation and now being a pensioner of over 70 years of age, it is difficult to find this lump sum unbudgeted. Is there any way to reduce this cost?" the reader asks.
Answer:
Ronel Straughan, a director at the law firm Finley and Tait, says the short answer to the question is no. In terms of the Deeds Registries Act, the transfer must be registered by a conveyancer, whose fee is determined by a guideline produced by the Law Society of South Africa and who will have to undertake the full procedure normally required for the registration of transfer of the property.
The guideline aims to set out a fair and reasonable fee for the job, on a sliding scale based on the value of the property. The charge of R6 500 quoted to the reader would relate to a property value of about R500 000. By negotiation, the reader and the conveyancer may agree on a lower transfer fee in appropriate circumstances, Straughan says.
Similarly, the attorney may charge an additional amount if he or she is called upon to draft the agreement resulting in the transfer or to give tax or estate planning advice.
Other charges involved will include municipal rates clearance fees, the deeds registry's fees and the costs involved in "switching" any bonds on the property.
But Straughan has a word of caution: You should be careful not to undermine careful tax, estate or risk planning which has resulted in assets being held by your close corporation, on the assumption that the benefit of the CGT exemption will outweigh the benefits of your current ownership structure.
She recommends that you seek the advice of your tax adviser and estate planner before taking the plunge and taking transfer of your private residence into your own name.
Question:
A reader says he is planning on emigrating early next year and wants to know if CGT will affect him when he liquidates all his assets - a house, two cars, furniture, life policies, pensions and so on?
Answer:
SARS says yes, to a very limited extent. The majority of the assets mentioned are not subject to CGT. However, even where they are subject to CGT, only the gain or loss that built up from October 1, 2001 will be taxed, so the amount of CGT at stake is likely to be minimal.
If there are capital gains tax issues you are unsure of, send your questions to us and we will publish the replies from the South African Revenue Service in this column. Send your questions to Personal Finance, PO Box 56, Cape Town, 8000, or fax (021) 488 4119, or [email protected]