Tax amnesty and your property

09 Mar 2012

Tax amnesty has proved a popular mechanism among those wishing to simplify their tax affairs, says Michelle Flaatten, a director at Norton Rose SA.

Individuals can now transfer holiday homes or investment properties into their own names, as long as those homes were used by them “mainly for domestic purposes”. As long as at least 51 percent of the property’s use is domestic (commercial premises, a holiday letting enterprise or farmed land will not qualify), the amnesty may be utilised.

Flaatten says many taxpayers have already taken advantage of the opportunity granted by the South African Revenue Services (Sars) in 2009 to clean out their companies, CCs and trusts by transferring properties out of these entities into their own hands.

She explains that the relevant legislation has been through several changes since it was first promulgated, with the latest (and we believe final) version becoming law quietly in the last week of 2011. 

It appears that the public is largely unaware of the latest changes.

“What stands out is the fact that it is now possible to make use of the amnesty provisions even for homes which are not one’s primary or main residence.”

Individuals can now transfer holiday homes or investment properties into their own names, as long as those homes were used by them “mainly for domestic purposes”. 

As long as at least 51 percent of the property’s use is domestic (commercial premises, a holiday letting enterprise or farmed land will not qualify), the amnesty may be utilised. 

The previous draft of the legislation had already broadened the category of qualifying acquirers to anyone who is a “connected person” in relation to the company, CC or trust.

This substantially widened the category of persons who could take transfer of the property – no longer did one have to be the party which originally financed the acquisition of the property, she says.

In practice, this made the legislation more popular as more people qualified to use its provisions. 

“We have also seen more tax non-residents taking advantage of the amnesty provisions.”

However, one must bear in mind that in those instances the benefit may be diluted as Sars does not currently allow non-residents to claim the R1.5 million primary residence exclusion, making it less attractive to these individuals to put properties in their personal names.

She says, non-residents will still benefit from the lower capital gains tax rate applicable to individuals as opposed to legal entities, when they eventually sell that property, so it may still be worth their while.

Another popular use of the amnesty provisions is where a property is held by a company, the shares in which are held by a trust.

In this instance it is possible to move the property from the company to the trust and then on to qualifying individual acquirers. 

There are several other requirements to satisfy, potentially the most troublesome of which is that the existence of the entity currently housing the property must be terminated.

Furthermore, you would still have to establish whether putting a property in your own name makes sense for you from a tax and estate planning perspective.

The fact that the amnesty provisions have been broadened in order for the legislation to achieve its stated goal is a boon for taxpayers, she adds.

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