Concession on capital gains tax
A MAJOR concession is in the offing for taxpayers intending to make a tax-free disposal of a residence held in a company or a trust, says David Warneke, tax partner at auditors BDO SA.
Historically, many people bought their residences through companies or trusts for a variety of reasons, including protection from creditors, avoidance of transfer duty and estate duty and circumvention of the old Group Areas Act.
The practice petered out when it was no longer possible to avoid transfer duty.
At the end of last month, the South African Revenue Service (SARS) re-issued its guidelines on such a disposal, making the concession that a company could dispose of the property directly to beneficiaries and that it did not have to be passed up the chain of a multi-tiered structure, with all the entities in it having to be wound up.
Mr Warneke said before the revision there had been consensus that in cases where the company in a trust owned the residence, the trust had to acquire the property from the company before the trust could sell or distribute it to its beneficiaries.
The company and the trust had to be terminated after the disposal. This caused a problem where the trust also held other assets that attracted capital gains tax. With the latest concession, the trust can remain.
Companies and trusts pay a higher rate of capital gains tax than individuals.