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To Transfer, Or Not To Transfer?

28 January 2010   (0 Comments)
Posted by: Author: Tess Rodrigues
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To Transfer, Or Not To Transfer?

Do your homework before you leap at a potential 22% tax saving on moving your corporate-owned property

The Amendment  to the taxation laws, with regard to residential properties in a company, close corporation or trust, has been widely publicized. But just in case you're still in the dark, if you own your primary residence in the name of a company, close corporation or a trust, you have a window period until 31 December 2011 to transfer this property into your personal name, without incurring transfer duty and capital gains tax.

However, whenever a government department extends a helping hand, it comes with certain limitations.
• The property must be used primarily as a residence. You must be living on the property from at least February 2009. Residential properties used for business, holiday homes, or buy-to-let investments do not qualify for this benefit. If the property is in a trust, you will need to seek legal advice to establish if you qualify for this dispensation, as there are a number of restrictions pertaining to trusts.

• If the property is mortgaged, you will have to cancel the existing bond and re-apply for a new home loan. Given the banks’ strict credit criteria, best you first establish if you will qualify for the bond. Furthermore, you need to bear in mind that the banks are not offering interest rates as favourable as they were a couple of years ago. If you are currently enjoying prime less 2%, you probably will have to settle for a lower interest rate discount, if any at all.

• Don't overlook the costs involved in cancelling your existing bond and registering anew bond. Make provision for bond cancellations costs, new bond registration costs, and banks' initiation fees. These figures will differ depending on the size of the new bond you wish to register. A bank, lawyer or bond originator should be able to give an indication of such costs.

• As you will be cancelling one bond and registering another, you need to give the bank three months notice of your intention to cancel the bond in the name of the entity, failing which, you will be liable for three months penalty fees.

Section 57 of the Deeds Registries Act 47 of 1937 makes provision for merely substituting one mortgagor with another, costing 50% less than having to register a completely new bond. However, most banks are hesitant to entertain a "substitution of debtor” transaction. One can only speculate that they may be concerned that their security will be compromised if the mortgage bond document is merely annotated to reflect the new mortgagor.

While this article serves as a warning to do your homework before you leap, it is not intended to deter you from taking advantage of this tax break. Don't be penny wise and pound foolish. The capital gains tax (CGT) saving when transferring ownership of a primary residence in the name of individual, compared with selling out of an entity is substantial enough to deserve your consideration.

Then there is the issue of the risk to the asset, which is probably why you didn't purchase the property in your personal name in the first place! But this is another topic for another day…

Source: By Tess Rodrigues (Taxbreaks)


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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