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Once upon a time, you could sell the shares in a company that owned fixed property and only pay Securities Transfer Tax (1/4%). Then in December 2002 it all changed.

That was a long time ago, but many people still don’t understand the full implications, so here they are –

A Residential Property Company is one which owns a dwelling or dwellings and their fair value exceeds 50% of the assets of the company, excluding financial instruments.

If shares in that company are sold, then the shares are treated as fixed property and the sale attracts Transfer Duty, not on the value of the properties, but on the sale price of the shares. If the buyer and seller are connected persons, then the sale will be deemed to have been made at market value. Anyone can determine this market value, but SARS can (but seldom does) challenge the valuation.

The rates of Transfer Duty are –

 TransferDutyRates

 It is the purchaser who pays the Transfer Duty, whilst the seller pays any Capital Gains Tax. Securities Transfer Tax is not payable under these circumstances.

Only a registered conveyancer can submit a Transfer Duty return.

This only applies to residential property and not to commercial property.

3 comments

  1. Hi again Jenny,
    One has to be so careful with legislation. I read the definition from a SAICA (South African Institute of Chartered Accountants) article.
    I have since re-visited the Transfer Duty Act and the definition there is what one would expect. If the aggregate of the fair values of all the residential properties exceeds 50% of the fair value of the total assets of the company, then it is a Residential Property Company.
    I always tell people that they should go to the source (i.e. the relevant Act) and not just believe what someone else (in this case SAICA) says. And yet I fell into the trap myself!

  2. Jenny Tanesse

    HI
    I was trying to get clarity on when transfer duty is payable on sale of shares and am still a bit confused.

    There are four members in our CC. One who owns 33% wishes to sell to the rest of us, but we are unsure if we would need to pay transfer duty or not and how one determines this? I’ve been told that it depends on if it is classified as a property company – 50% of assets or more in residential property, I’ve also been told that its the number of properties that might alter this. I’m not sure what actually applies?

    Can you give me clarity on this? Thanks Jenny

    1. Hi Jenny,
      A Residential Property Company is defined in the Transfer Duty Act as one which owns any dwelling (note the singular) and the fair value of the property exceeds 50% of the aggregate fair value of all the assets (other than financial instruments) held by that company.
      I am of the opinion that the drafters of this definition meant to say “the fair value of all such properties exceeds”, but they didn’t. So, according to the definition, only if any one of the residential properties is valued at more than 50% of the aggregate total assets, would the company be a residential property company.
      The sale of shares of a residential property company is deemed to be the sale of property, being the shares, not the property itself, and the sale price is subject to Transfer Duty (and CGT), but not to Securities Transfer Tax. So the Transfer Duty will depend on how much the shares (or in your case member’s interest in the CC) are sold for.
      The Transfer Duty return can only be submitted by a conveyancer.

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