According to the transfer duty amnesty draft legislation that is expected to come into effect early next year, the SA Revenue Service will once again be granting amnesty to owners of companies, close corporations and in certain circumstances, trusts, to encourage them to transfer their properties into the name of a natural person without incurring transfer duties.
“Over the last 10 years, the benefits associated with owning a property in a legal entity have been eroded. SARS has been trying to remove these ‘complicated ownership structures’ and this is another attempt – possibly a last one – to flush out the last of the properties owned in legal entities,” says Herschel Jawitz, chief executive of Jawitz Properties.
“The last transfer duty amnesty was in 2001 and coincided with the introduction of Capital Gains Tax (CGT) which imposes a severe penalty in CGT payable for properties owned in legal entities. Aside from not getting the R1.5m exemption, the portion of the gain that is taxable is 50% compared to the 25% for a property owned by a natural person. This can amount to a difference of hundreds or thousands of rands payable in CGT.
“The amnesty period includes trusts in very specific circumstances but before taking advantage of the amnesty, the benefits of estate planning need to be carefully considered as they may outweigh the CGT benefits of transferring the property out of the trust.”
Jawitz says at this stage it is not certain how the banks will respond to a property that is transferred from a legal entity to a natural person. Presumably if there is a bond, the bond will have to be re-registered into the owner’s name incurring additional costs. In addition, in terms of the National Credit Act, it is not clear if the banks will have to re-qualify those individuals under different bond qualifications criteria. The market will await the response from the banks.
“From an estate agency point of view it may mean, depending on the impact of the CGT calculation versus the cost incurred in transferring the property, that owners of properties in CCs, companies or trusts will consider withdrawing their properties from the market and rather wait to sell after the introduction of the new proposed legislation in January 2010 – if the bill is gazetted and passed.
“On the whole, the legislation in itself is fair and reasonable. However, the market always looks for absolute clarity as to the timing and the content of the bill because no market – whether it is the stock exchange or the property market – ever reacts positively to uncertain legislation that may or may not affect values and sales figures,” he says.
