The South African Revenue Service explains its concession to taxpayers who want to transfer ownership of their property from a trust into their own name in order to avoid capital gains tax.
Question:
Any gain below R1 million on your primary residence is exempt from capital gains tax (CGT), as long as that residence is in your name and not in the name of a close corporation, company or trust.
The South African Revenue Service (SARS) gave taxpayers a year to transfer ownership of their properties from a company or close corporation into their own names duty-free. Philip Ingram asks if the same rules apply to transferring a property from a trust to an individual.
Answer:
SARS replies that although the draft legislation did not initially make provision for trusts, the current CGT Bill does. The conditions for obtaining exemption differ in some respects from those applicable to companies.
The relevant provisions offer exemption from:
* Transfer duty on the transfer of the residence;
* Stamp duty on the registration of a mortgage bond and transfer of shares in a share block company; and
* CGT on any gain realised by the trust on the transfer.
SARS says the conditions attached to the transfer duty exemption include:
* The residence must be acquired by an individual;
* After acquisition, the residence must constitute the individual's "primary residence" for CGT purposes;
* The acquisition must take place between the date of promulgation of the Taxation Laws Amendment Act 2001 and September 30 2002;
* The individual must have originally either:
- Disposed of the residence to the trust by way of donation, settlement or other disposition; or
- Financed all the expenditure actually incurred by the trust to acquire and to improve the residence.
* The individual or his or her spouse must have:
- Ordinarily resided in the residence; and
- Used it mainly for domestic purposes as his or her or their ordinary residence from April 5 2001 to the date of registration of the transfer of the property.
It follows that individuals acquiring their residences in a trust after April 5 2001 will not qualify for the exemption;
* The last day for registration of the transfer of the residence in the Deeds Office is March 31 2003.
The exemption only applies to the first two hectares of land transferred with the residence, the land must be used mainly for domestic or private purposes, and it must be transferred at the same time as the residence.
The stamp duty exemption enables the individual acquiring the residence from the trust to register a new bond or take over an existing bond from the trust free of stamp duty. The conditions are the same as those applicable to the transfer duty exemption.
This is a new question and answer column on capital gains tax. Send us your questions and we will publish the replies from the South African Revenue Service. Write to PO Box 56, Cape Town, 8000; Fax (021) 488 4119; email [email protected]