Recent amendments to the Income Tax Act have made it possible to transfer residential property from a legal entity (trust, company or close corporation) to an individual, without paying transfer duty, capital gains tax, dividends tax or secondary tax on companies.
Important to note is that the window to make use of this tax amnesty is closing with the deadline of 31 December 2012 fast approaching. This begs the question as to whether there is still enough time left to make use of this amnesty before the end of the year and whether it is not already too late?
According to the SARS Guide to Disposal (“the Guide”), it is a requirement that the interest in the residence must have been disposed of by the entity on or before the 31st of December 2012. The Guide specifically states that it is not a requirement that the property be transferred to the individual in the Deeds Office by the 31st of December 2012.
Accordingly, in order to meet this disposal requirement, the date of distribution or the date of sale (depending on the circumstances), must just be on or before the 31st of December 2012. It is also important that the disposal must no longer be subject to any suspensive conditions on the said date, as the date of disposal will then be regarded as the date on which the suspensive conditions were fulfilled, and if that date is after 31 December 2012, the disposal will not qualify for the tax exemption.
What this means is that if you conclude a sale agreement for the transfer of your residential property from your trust into your name, and such agreement is unconditional before 31 December 2012, you will qualify for the tax exemption relating to such transfer, even though the actual registration at the Deeds Office will only take place in 2013.
To qualify for the exemption the following broad requirements must be met:
- The property must be disposed of to a natural person who is a connected person of the entity as defined in the Income Tax Act.
- A qualifying residence must be one that is mainly used for domestic purposes by one or more natural persons during the period of 11 February 2009 to the date of disposal by the entity.
- The natural persons who used the residence mainly for domestic purposes must be connected persons in relation to the entity at the time of the disposal.
- Within six months of the date of disposal certain specified steps must be taken to terminate the existence of the entity holding the residence.
Persons who are interested in considering utilising this tax amnesty to transfer a residence into their personal names, are urged to not delay and contact an attorney as soon as possible to have the necessary contractual documents put in place and signed before 31 December 2012 in order to qualify for the benefit of the tax amnesty.