Subsequent to the publication of the article, “Taxpayers hit a home run” the proposed legislation was passed and the Income Tax and Transfer Duty Acts were amended with retrospective effect from 11 February 2009. The South African Revenue Service (“SARS”) has now also issued a directive on these amendments. This means that we are now in a position to assist you with the transfer of your property.

The amendments allow individuals an opportunity to transfer their primary residences from a company, close corporation or trust into their own names without incurring any transfer duty, capital gains tax (“CGT”) or secondary tax on companies.

To illustrate the benefit of this tax break, consider the following example:

The family home of Mr and Mrs X is owned by their family trust. The home was purchased by the trust for R3 million on 1 January 2003. During 2004, renovations were undertaken to the property in the amount of R500 000,00. The trust then sold the property to a third party for R6 million on 20 January 2009. In the above example, the situation would be as follows:

If the family home had been owned by Mr and Mrs X directly, they would have qualified for the R1.5 million primary residence CGT exclusion afforded individuals. When they sold the property to a third party, the situation would have been as follows:

If Mr and Mrs X in the above example make use of the new legislation, and transfer their home from the trust into their own names between 11 February 2009 and 31 December 2011, they will not pay any CGT or transfer duty. They will be treated as if they had at all times owned the property in their own names. In addition, Mr and Mrs X will qualify for the R1,5 million primary residence CGT exclusion afforded individuals if they later decide to dispose of their family home to a third party.

Before deciding to transfer your primary residence from a property holding entity into your own name, it is strongly advised that you consult with your attorney. Depending on your specific circumstances, for example your exposure to market risk, it may well be that the benefit of keeping your residence in a property holding entity outweighs the tax concession granted by the new legislation.

Deneys Reitz is well suited to provide expert advice on the conveyancing and tax aspects related to these transactions, and to attend to the registration of such transfers.