People who buy company- or CC- or trust-owned residential property may be liable for transfer duty in future



A tax loophole which has benefited property owners for many years will soon be closed if the draft Revenue Laws Amendment Bill becomes law. According to Mr Bill Rawson, national president of the Institute of Estate Agents, the SARS intends to make people who buy company- or CC- or trust-owned residential property liable for transfer duty in future. "The loophole that has existed for many years is that transfer duty has been payable only if a change of ownership of a property is registered in the Deeds Office," Rawson explains. "People have been able to avoid paying duty by registering the property in the name of a company or a CC or a trust, and buying or selling the company, CC or trust with the property as its major asset. Technically the transaction is thus a sale of shares or interest rather than a sale of the property itself and, because the company or CC or trust remains the registered owner, nothing has to go through the Deeds Office and transfer duty is therefore avoided." The SARS now proposes to introduce a definition of a "residential property company", i.e. one which holds "any dwelling-house, holiday home, apartment or similar abode" or any land zoned for residential use, and where such property constitutes more than 50% of the company's assets. In addition, shares or member's interest in such a company would in themselves be defined as "property". Anyone who buys shares or an interest in a residential property company would therefore have to pay transfer duty. Similar provision is made for trusts. There are also provisions to prevent under-valuing or properties or shares to reduce the amount of transfer duty payable. "If passed into law, as they no doubt will be," says Rawson, "these proposals will make a significant difference to the property market. The introduction of CGT last year made it less attractive to put residential properties into companies, CCs or trusts because it made the sellers liable for CGT on their profits when they sold. If these latest proposals are implemented, buyers will no longer derive any benefit in buying companies in order to buy houses, and they may prefer to buy the properties directly and leave the sellers with the companies. "This may actually be to the buyer's advantage, because that way he doesn't inherit any problems that the company may have, such as debts or pending legal actions." The draft Revenue Laws Amendment Bill (a 190-page-long document) and the Explanatory Memorandum (74 pages) can be downloaded from the SARS website (www.sars.gov.za).