ASK THE EXPERTS
Q&A Forum: How much tax will I pay on the sale of a house held in trust?
Have a personal finance concern but don't know where to turn to? Let us ask the experts. Send your questions to Money@tisoblackstar.co.za.
Capital gains tax was introduced in SA with effect from October 1 2001 and the gain or loss attributable for the period only needs to be considered on or after that date.
Q: We purchased a house for R325,000 in 1996. The trustees are my wife, daughter (26 years old) and myself. Given that capital gains tax (CGT) is to be applied upon selling the house:
- What would the tax payable be should we sell for R2m today?
- Would there be less tax should I donate the house to my children via the family trust (that is, donations tax only applied)?
This house is the only asset in the trust, and it remains our primary residence.
Interested, via e-mail asks.
A: Wouter Fourie, the CEO of Ascor Independent Wealth Managers and the 2015-2016 FPI Financial Planner of the year, responds:
Tax payable if you sold today.
I will only focus on the information provided. There might be more options depending on the structure of the trust.
Since CGT was introduced in SA with effect October 1 2001 (the valuation date) you only need to consider the capital gain or loss attributable for the period on or after October 1 2001.
You may use one of the following three methods to determine the value of the house on October 1 2001:
a) 20% × (proceeds less allowable expenditure incurred on or after October 1 2001). You would typically use this method if you have no records and did not get a valuation of the house on October 1 2001. Using this method R400,000 will be your base cost.
b) The market value of the asset as at October 1 2001. To use this method, you must have valued your asset on or before September 30 2004.
c) The time-apportionment base cost method. You calculate the value of the asset on October 1 2001 by apportioning the current value between how long you have owned it before, and after 1 October 2001. (Assume property was purchased in March and sold in March)
Original cost + [(proceeds – original cost) × number of years held before October 1 2001 divided by number of years held before October 1 2001 + number of years held on or after October 1 2001]
R325,000 + [(R2,000,000 – R325,000) x (2001-1996 = six years) = R1,005,000 divided by 2001-1996 = six years) + (2019-2001 = 18 years) = 24]
Using this method R743,750 will be your base cost. Using this higher base cost method would be more beneficial for you.
Capital gain to be included in taxable income of the trust.
Proceed R2,000,000 less R743,750 = R1,256,250 x 80% (inclusion rate) = R1,005,000
Tax payable on the gain from sale of property within the trust R1,005,000 x 45% (trust tax rate) = R452,250.
Because the asset is held within a trust, the inclusion rate is 80% of the gains. If the conduit principle is used, the gains can be distributed to the capital beneficiaries and lower inclusion rate to 40%. Please take note that there are other complications using the conduit principle and professional advice should be considered.
Would there be less tax should you donate the house to your children via the family trust?
You can only donate something that you own. The property is owned by the trust so you do not have the right to donate it because you don’t own it any more. If your trust deed is structured correctly, the property will stay within the trust should you pass away, and the capital beneficiaries will have rights to the property in future.
Q: I have misplaced the share certificate for my RMI shares but still receive dividends and shareholder notices. What do I need to do before I can sell my shares?
Anonymous in Cape Town asks.
A: Computershare Investor Services, transfer secretaries of RMI, responds:
It is possible to replace a share certificate from the company issuing shares getting a resolution confirming the replacement of the certificate from the board of directors, which could take longer.
The first step is to complete a form on Computershare’s website (www.computershare.co.za) in which you supply the name of the company that issued your shares, as well as the number of shares you own and the full name and surname of the registered holder.
You also need to let the company know whether you would like:
- a new share certificate, and if so whether you will collect or have us post it to you;
- your shares dematerialised into an existing CSD Participant account, in which case we need to know the details of the account or the name of your broker; or
- to open a Computershare CSD Participant account.
Computershare will verify the information and ask for proof of ownership. This could be a dividend advice, copy of the share certificate or any other document you have that reflects your shareholding. You will have to pay an administration fee of R288.75 (or R350 for urgent cases).
Computershare will then send you a form to apply for the insurance indemnity from the administrators, Southern Cross Financial Consultants. The indemnity insurance, without which replacement cannot take place, is required by the company that issued your shares and is a standard requirement. It is calculated at a rate of 2.5% of the current market value of the shares with a minimum payment of R250.
Once all the procedures have been completed, Computershare will issue the new share certificate and either post it to you by registered mail, deliver it to your broker or have the shares dematerialised into your CSD Participant account, depending on your instruction.