By Sue Mosdell

The new Revenue Laws Amendment Bill tabled recently in parliament introduces measures which will influence property owners in deciding whether to acquire property in a close corporation, company or trust as opposed to in their personal names.

The government's stated intention as mentioned in the budget speech of March 2002 to impose tax on the disposal of shares, membership or other rights in corporate entities which own property is borne out in the Bill. The innovation is brought about by expanding the definition in the Transfer Duty Act of property which attracts transfer duty on the disposal thereof to include shares in a company, a member's interest in a close corporation, or a contingent right in terms of a trust. The innovation only applies to residential property. The test as to whether property is residential is its zoning.

The transfer duty due on disposal of the interest in the entity is in the first instance levied against the purchaser, but there is provision for recovery from the seller, the public officer of a company, or the trustees.

The new provisions are clearly intended to further discourage ownership of residential property by corporate entities and trusts, in addition to the capital gains tax concessions already in place for personal owners of primary residences. The last remaining incentive to home owners to use companies and close corporations as property owning vehicles, namely to facilitate cheap and easy resale, now falls away.

It should be stressed, however, that trusts still have a role to play in personal financial planning as vehicles for limiting estate duty liability, for those with nett estates over R1,5 million.

The situation remains unchanged when a corporate entity holds commercial property, in that the shares or member's interest therein may be disposed of without attracting transfer duty.

Where property is income producing and the owner is a registered VAT vendor who collects and pays over VAT on the income which the property generates, the situation remains that on disposal of the property VAT is levied and transfer duty does not apply. If the property is sold as a going concern to another VAT vendor, a zero rating may still be obtained. The zoning of the property is irrelevant.

At this stage the likely commencement date of the new legislation is unknown, although it is widely expected that it will be during 2003. The provisions mentioned will apply only to transactions entered into after the commencement date.