The bare dominium was transferred by way of a loan. My question is if there will be capital gains tax payable at the time of transfer. A lot of people are of the opinion that capital gains tax are only payable once the property is sold by the trust and n
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
In the Eighth Schedule, unless the context indicates otherwise, any meaning ascribed to any word or expression in section 1 of this Act must bear the meaning so ascribed, and 'asset' includes –
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property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency, but including any coin made mainly from gold or platinum; and
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a right or interest of whatever nature to or in such property;
SARS explains, in paragraph 4.1.2.5 of their CGT guide, rights as follows:
The definition of ‘asset’ includes rights of whatever nature to or in property. A jus is a right recognised by law. Under Roman-Dutch law, rights that can be disposed of consist of
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personal rights (jus in personam), and
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real rights (jus in rem).
SARS, in their Transfer Duty guide, states that “there is no numerus clausus (closed number) of limited real rights, but the following list should suffice:
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Personal servitudes such as usufruct, fideicommissum, habitatio and usus; …
This means that, according to our common law, full dominium of an asset consists of the right of ownership and the right to use the asset in question.
When the individual therefore disposes of the bare dominium to the trust, the is a disposal of an asset. It is a part-disposal, as we indicated, and the capital gain will be the amount that accrues in respect of the disposal less base cost, as determined under paragraph 33 of the Eighth Schedule to the Income Tax Act.
The principle here is that the usufructuary, or the individual who holds the limited interest, will have to renounce his or her rights and interests in the property in question, before the bare dominium holder (the trust) can dispose of its asset. Put differently, there are two assets and two disposals when the trust and the holder of the interest disposes of the property. There will then be a capital gain (or loss) for both parties.