Multi-tiered structures

21 June 2012

The requirement that a company be liquidated, wound up or de-registered and that a trust must be terminated where residences were disposed of in the context of a multi-tiered structure has given rise to adverse estate duty and capital gains tax consequences if such structure holds assets other than the residence.   SARS has now addressed this issue in the latest GUIDE TO THE DISPOSAL OF A RESIDENCE FROM A COMPANY OR TRUST (1 OCTOBER 2010 TO 31 DECEMBER 2012) (Issue 2) published on 29 May. 

At page 26:

"Sale by company directly to beneficiary of trust
In order to avoid terminating the trust in a multi-tier structure it has been contended that it is possible for the company to sell the residence directly to a beneficiary of the trust. In this way it is argued that only the company need be de-registered or liquidated because it is the only entity in the chain that has disposed of a residence. At issue is whether paragraph 51A(3) and (4) require that an acquirer of a residence from a company be a shareholder of that company.  This is certainly the case with paragraph 51A(3) but the wording of paragraph 51A(4) does not appear to explicitly require that the acquirer be a shareholder.  It applies – 

  • to the acquisition of a residence by a person as a result of a disposal by a company under paragraph 51A (note the use of the term “person” as opposed to “shareholder”); and
  • when paragraph 51A(3) does not apply.

Paragraph 51A(4)(a) requires that the acquirer must disregard the disposal of “any share” in the company upon its termination but does not specifically require that the person must actually hold shares.  Arguably this could be inferred.  In view of the limited application of paragraph 51A and the fact that one of its purposes is to reduce the number of companies on register, SARS will accept that paragraph 51A(4) does not require a person acquiring a residence from a company to be a shareholder.  Taxpayers who follow this route need to be mindful of the potential adverse donations tax (see 10) and STC (see 7) or dividends tax (see 8) consequences."

Guide to Disposal of a Residence (Issue 2) 29 May 2012

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