Causa for tax window transfers and requirements by Sars
Ig Kruger's plea for guidance refers.
In my humble opinion one must distinguish between the two issues here, namely the one is a tax issue and the other is a conveyancing issue.
The moratorium provisions are the tax issues. Once you have chosen a causa to transfer the property, the conveyancing follows that, without reference to the moratorium provisions, unless these provisions are the causa, as proposed by Allan West.
1. Requirements by SARS
These requirements have been published by SARS and have been distributed by the Cape Law Society.
- In terms of paragraph 51 of the Eighth Schedule, it is not the underlying causa which is subject to the provisions of that paragraph (the moratorium provisions), but the "transfer… of an interest in a residence". (My underlining).
- In my humble opinion, therefore, and as stated before, any causa which is suitable can be used, such as a sale, donation, distribution from a trust, dividend in specie, etc. If the transfer complies with the moratorium provisions, the relevant taxes and duties are exempt.
- The client must elect the causa most suitable to it. Under normal circumstances, a sale from a trust would be preferable as the liability of the transferee of the residence towards the trust in respect of the purchase price will be a claim against his/her estate and will, therefore, to a large extent cancel out the additional Estate Duty which the residence may cause in the client's or the client's spouse's estate.
- However, a sale may not be prudent. For instance, take the case I am busy with at the moment:
- A farm (in extent more than 2 ha) is registered in the name of a trust which is not registered as a VAT vendor. The client wishes to sell the farm to a third party and has been advised that he should transfer the farm to himself first (in terms of the moratorium provisions) in order to obtain the benefits of the moratorium provisions, and the primary residence Capital Gains Tax exemption of R1,5 million on resale to the third party.
- The provisions of paragraph 51 and Section 9(20) of the Transfer Duty Act will be applicable to the two hectare portion with the residence thereon only. If the farm is, therefore, sold to the client, the farming portion will attract, inter alia, Transfer Duty. As the client is not registered as a VAT vendor and does not wish to register, the Transfer Duty will by far outweigh the Capital Gains Tax saving.
- The solution is, therefore, that the farm be distributed as a capital distribution to the client, who happens to be a beneficiary of the trust and relative of the founder. Consequently, the two hectare portion will enjoy the benefits of the moratorium provisions whilst the farming section will trigger Capital Gains Tax in the trust, but will be exempt of Transfer Duty in terms of Section 9(4)(b)(iii) of the Transfer Duty Act.
- Section 22(4) of the Income Tax Act and paragraph 38(1)(b) of the Eighth Schedule will also be applicable.
Unfortunately, the farm (or its sale proceeds) will attract Estate Duty, but that is a problem, hopefully, for 20 years from now, if ever.
- So, in this case, the underlying causa would be a capital distribution of the farm from the trust.
- Furthermore, in my humble opinion, and for conveyancing purposes, such an underlying causa is sufficient, i.e. a sale. With respect to Allan West, I do not think it is necessary to set out the moratorium provisions as a causa for conveyancing purposes. It is not necessary to prove to the Registrar of Deeds that it is a moratorium transfer. That must be proven to SARS.
Trusting that the above will be of assistance.
Anville Van Wyk