PURCHASE OF C.C.'s, COMPANIES AND TRUSTS OWNING RESIDENTIAL PROPERTY

A brief guide to property transfers in South Africa

New SARS requirements for transfer duty

A brief guide to Capital Gains Tax

Purchase of Closed Corporations, Companies and Trusts owning residential property

Purchase of immovable property by non-residents

Proposed legislation relating to Capital Gains Tax payable by non-residents

The financial implications of purchasing the member's interest and claims in a Close Corporation of shares in a Company owning residential immovable property:

Due to the fact that anybody who purchases a Close Corporation or Company from now on onwards will have to pay transfer duty, it is unlikely that anybody will in the future purchase a Close Corporation, Trust or Company from a third party because of the added risk factor involved in purchasing Close Corporations or Companies This risk factor is that there may be debts that the purchaser does not know about.

Accordingly, if the Purchaser purchases the member's interest and claims in the Close Corporation or shares in the Company and wants to sell the property in the future, the Close Corporation, Company or Trust will almost certainly have to sell the property instead of the member's interest and claims in the Close Corporation or shares in the Company.

If the Close Corporation, Company or Trust sells the property it will pay Capital Gains Tax of 14.5% on the capital profit which for practical purposes is either:-
- The difference between the selling price and the price that the property was first bought by the Close Corporation (not the price that the purchaser paid to purchase the Close Corporation); or
- The difference between the selling price and the value of the property on the 1st of October 2001.

In addition the Close Corporation or Company will have to pay STC (Secondary Taxation on Companies) on any profits made (again on the basis set out in as in 3a and 3b above) if it wants to pay monies over to the owner of the Close Corporation or Company. Accordingly the purchaser could end up paying over a large portion of the profits to the Receiver of Revenue when he sells the property in future.

For more legal information, visit: www.dvhcoastal.co.za