Because of the fact that transfer duty was previously not payable if shares or membership interest in a Company or Closed Corporation were transferred from one person to another, many houses and other fixed properties were registered in Closed Corporations or Companies.  The reasoning behind this was that should the owner sell the property, he could sell his share to the buyer and the property could remain the property of the Closed Corporation or Company.  No transfer duty was payable in such an instance.

Unfortunately SARS (South-African Revenue Service) closed this loophole with effect from 2004.  When shares or membership interest are transferred and a residential property is registered in a Closed Corporation or Company, transfer duty is now payable on the value of the property.

Another disadvantage for the Seller of shares or membership interest is that he/she may only take the profit made in the selling process from the entity, if he pays Secondary Company Tax on such profit.  Apart from Capital Gains Tax, Secondary Company Tax is also payable, resulting in a far smaller profit realized due to the increased Tax burden.

SARS decided to amend the Income Tax Act in order to make provision for the transfer of residential properties from Companies and Closed Corporations to the members or shareholders, without the normal tax implications.  In terms of the proposed legislation, shareholders/members of a Company or Closed Corporation will be allowed to transfer the property from  the Company or Closed Corporation to themselves, without Transfer Duties, Capital Gains Tax or Secondary Company Tax being payable.  The requirements for such a transfer are as follows:

1. The property must be a residential property, in other words a homestead.
2. The residence must be the only property of the Company or Closed Corporation.
3. The shareholder or member must be a natural person. (Not a trust, company or closed corporation)
4. The property must be used as residence by the shareholders/member or the member's spouse.
5. The transfer must take place within a window period of 2(two) years, being from 01 January 2010 up to and including 31 December 2011, when this grant will fall away.

As mentioned above no transfer duty will be payable for such a transfer as well as no Capital Gains Tax or Secondary Company Tax.

A further advantage to the owner, if the residence is registered in his own name, is:

1. When the owner sells the residence, he /she won't pay Secondary Company Tax, and
2. a R1 500 000.00 exemption will be granted before Capital Gains Tax is payable, when he/she sells the property, and
3. he/she will pay Capital Gains Tax at a maximum rate of 10%, while the Company or Closed Corporation will be taxed at a rate of 20%.

If your residence is registered in a Company or Closed Corporation and you do qualify as stipulated above, it may be a golden opportunity to make use of this concession by SARS in order to minimize future tax implications.