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Capital Gains Tax
Friday, February 1, 2002
Let sleeping dogs lie....

Property owners must carefully consider their options when determining their potential liabilities in terms of Capital Gains Tax (CGT). As discussed in our last issue there is a window of opportunity for individuals whose properties are in the name of a close corporation or trust to transfer ownership to a private person (see Insurance Times & Investments Vol 14.11 December 2001 page 16).

However, as with all matters pertaining to tax, life is not so simple, and there are several factors to bear in mind before taking the plunge to convert to individual ownership.
A primary residence worth less than R1 million is not subject to CGT. This means the tax concession cannot be worth more than R105 000 (being the saving of an effective rate of 10,5% CGT on profits made on properties worth more than R1 million). The crucial question, then, is will the transfer from a CC or a trust save more than this? And even if it does, would transfer not defeat the object of the original strategy?
According to Professor Matthew Lester of Rhodes University the transfer of ownership being considered must be in respect of a property that would classify as a primary residence. Rental properties and holiday homes in the name of a trust or CC, for example, would not qualify for the concession, even if a private individual owned them. He points out that certain taxpayers may not wish to register their primary residence in their own name since it would become subject to their personal and business risk.
Transfer would also lose the existing tax benefits enjoyed by the CC or trust entity. For example, the benefits of circumventing transfer duty and conveyancing costs when the property is sold would be lost. Bear in mind that transfer duty rises on a sliding scale to as high as 8% of the sale price of a house.
The benefits of minimising estate duty exposure by registering a property in the name of a trust would also be lost. Note that estate duty together with CGT is 20%. The trust, private company or close corporation will obtain the benefit of phase-in concessions. But where the properties have been held for many years the effect of CGT will be minimal.

Copyright © Insurance Times and Investments® Vol:15.1 1st February, 2002
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