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Thread: Tax relief for transferring domestic residences

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    Post Tax relief for transferring domestic residences

    In the past people often held their homes in companies and close corporations, but the tax implications have changed dramatically over the past seven years.

    Now the company will pay capital gains tax on the profit on the sale of the property, as well as secondary tax on companies when it distributes the profits to the owner. In addition, if a natural person buys the property, he or she will also pay transfer duty on the value of the property.

    The recent Draft Taxation Amendment Bill proposes that from 1 January 2010 to 31 December 2011 a company*, whose sole asset is a house that is used by the shareholder as his or her home, may distribute that house to that shareholder on liquidation or deregistration with no capital gains tax, secondary tax on companies or transfer duty being payable. It applies only to companies that own just one asset: the house that the shareholder of that same company or his or her spouse uses only for domestic purposes. (Paragraph 51A of the Eighth Schedule)

    The current capital gains tax exemption for the house you live in refers to your ‘primary residence’, which is specifically defined in par 44 of the Eighth Schedule. This new exemption in the draft legislation, however refers to ‘domestic residence’ that is simply defined as any residence that is used exclusively for domestic purposes.

    It also includes a definition for the companies that the exemption will apply to. A ‘domestic residence company’ is any company:
    (a) the shares of which are all, from 11 February 2009 until any distribution of a domestic residence by that company directly held by a natural person; and
    (b) that holds as its sole asset a domestic residence that is and was throughout that period used as a domestic residence by that natural person;

    I suggest that you wait until the Act is promulgated before doing anything, however. The wording is only in draft and may still change.

    * The exemption will also apply to close corporations.
    Last edited by taxlibrary; 31-Jul-09 at 11:43 PM.

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