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[FAQ] The donation of a property by a company to a Trust
- 18 June 2021
- Capital Gains Tax
- The Tax Faculty Tax Specialist
This article is based on tax law for the year ending 28 February 2021.
Background
A taxpayer is a business owner currently owning, residing and working from a property worth R3 million. The property is currently registered in the business name (a Pty Ltd). This property is also the taxpayer's primary residence.
The taxpayer wants to transfer this property into a Trust so that the property becomes a protected asset in the long-term, in the case of insolvency.
- Is the company subject to capital gains tax (CGT) when the transfer is done to the Trust?
- Would the Trust pay the CGT, or would the company pay?
- Since the taxpayer is also living in this property (and it is his primary residence), would the CGT be levied on the amount over R2million only?
Answer
The Income Tax Act
If the property is owned by a company, primary residence exclusion will then not be available. Primarily because the individual doesn’t hold an interest in the property. We accept that the individual is not a lessee who hires the residence, or part of the residence owned by the company.
There is indeed a disposal of an asset by the company and a capital gain will arise and be taxed in the company (no exclusion).
As the disposal by the company is at the instance of any person (the taxpayer in this instance), section 57 would deem the property to have been donated by the taxpayer and the taxpayer would pay the donations tax. We accept that this is not actually a dividend.
Webinar Commentary
For further webinar commentary refer to the following webinar: Capital Gains Tax Series here.