FAQs: Transfer of a Residence out of a Company, CC or Trust

If your CGT question is not dealt with in this list of FAQ's, please address your query to cgt@sars.gov.za

1. If I own my home in a company or trust is there a way to correct the situation so that I can enjoy the primary residence exclusion?

Where your home is owned by a company (including a close corporation) or a trust, a window of opportunity has been granted to transfer the residence into your own name without incurring any adverse tax consequences.

• The natural person must acquire the residence from that company or trust on or after the promulgation of the Taxation Laws Amendment Act 2001 (i.e. 20 June 2001), but not later than 30 September 2002.
• The natural person alone or together with his or her spouse, must directly hold all the equity share capital in that company from 5 April 2001 to the date of registration in the deeds registry of the residence in the name of that natural person or his or her spouse or in their names jointly.
• The natural person disposed of that residence to the trust by way of donation, settlement or other disposition or made all the funds available that enabled the trust to acquire the residence.
• The natural person alone or together with his or her spouse ordinarily resided in that residence and used it mainly for domestic purposes as his or her ordinary residence from 5 April 2001 to the date of registration.

• The registration of the residence in the name of the natural person or his or her spouse or in their names jointly takes place not later than 31 March 2003.

2. If I purchased property in a trust, would I qualify for exemption from stamp duty and transfer duty if I transfer the property into my own name?

No, you would not qualify for the exemption from stamp duty and transfer duty. A number of conditions have to be met before the exemptions apply. Section 9(17) of the Transfer Duty Act stipulates that the natural person in whose name the property is to be registered must have disposed of that residence to that trust by way of donation, settlement or other similar disposition, or financed all the expenditure, that was actually incurred by the trust to acquire and to improve the residence. If a trust is purchased which owns a property, the purchaser could not meet this condition.

3. I purchased my house by taking over a trust. My wife and I became the new trustees and beneficiaries while the sellers resigned as trustees/beneficiaries. I organised the bond (in the name of the trust) and paid all affiliated costs in making the purchase. Does this arrangement meet the requirement that the individual must have originally… financed all the expenditure actually incurred by the trust to acquire and to improve the residence. Even if I do qualify for exemption from the transfer duty (were I to transfer the house into my name) I’m sure there will be some costs. What can I expect? Legal fees? Bond registration costs? It sounds too good to be true

You appear to have become involved in a scheme that purports to avoid transfer duty. SARS does not accept the validity of these schemes and is currently working on a test case in this regard.

You do not meet the requirements to qualify for the exemption, as you are not the original financier of the expenditure incurred by the trust to acquire the property.

Another exemption that may be applicable in the case of trusts is to be found in section 9(4)(b) of the Transfer Duty Act. This section provides for a transfer duty exemption where a trust is founded by a natural person for the benefit of a relative and the property is transferred to the relative. In this case, however, the exemption will not apply as the trust was not founded for a relative of the reader.

Finally, had you qualified for the exemption from transfer duty on the transfer of the property and from stamp duty on the hypothecation of the mortgage bond, you would still have been liable for conveyancer's fees, bank charges and other non-tax costs of the transfer.

4. In terms of the Act, no duty shall be payable if the person disposed of the residence to a trust by way of donation…… or financed all the expenditure……..(a) Does all the expenditure mean 100%. For example, if a third party paid for a room to be added to the property, will the section apply? (b) Please confirm that obtaining a bond or loan will be regarded as "financed all the expenditure"

5. We have a property in a CC. There are two members that each have a 50/50 share and the two members are in a same sex union from May 1986. The property has been used as a primary residence for domestic purposes since March 1998. Bond expenditure was paid by the members and the size of the property is 2,3 hectares and the municipal value is about R500 000. We would like to know what the effect of CGT would be on us if we transferred the property to our individual names.

The transfer of the residence into the names of the members will be exempt from transfer duty, stamp duty and secondary tax on companies and not subject to CGT if it meets the following conditions:

• the residence will be the primary residence of the members;

• the residence is acquired from the CC after the promulgation of the Taxation Laws Amendment Act 2001(i.e. 20 June 2001), but not later than 30 September 2002;

• the natural person alone or together with his spouse held the full control of the CC from 5 April 2001 to the date of registration in the deeds registry of that residence in the name of that natural person or his or her spouse or in their names jointly;

• the natural person alone or together with his or her spouse ordinarily resided in that residence and used it mainly for domestic purposes as his or her or their ordinary residence from 5 April 2001 to the date of that registration.

• the registration in the deeds registry in the name of that person, his or her spouse or their names jointly takes place not later than 31 March 2003.

The definition of "spouse" in relation to any person, includes a person who is the partner of such person in a same-sex union which the Commissioner is satisfied is intended to be permanent. The union is, in the absence of proof to the contrary, deemed to be a union without community of property.

When the size of the property qualifying for exclusion as a primary residence exceeds two hectares a reasonable apportionment is required, as any gain or loss attributable to the property in excess of two hectares is subject to CGT. This is irrespective of whether income is derived from the land or the fact that it cannot be used for any development. In fact, if income was derived from one hectare of the property, only 1,3 hectares would qualify for exclusion as a primary residence as the one hectare was not used for domestic or private purposes.

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