Buying property as a (Pty) Ltd

Private companies purchasing immovable property pay transfer duty at a flat rate of eight percent of the purchase price. They also pay a comparably high CGT with an inclusion rate of 50 percent and an income tax rate of 28 percent which translates into an effective CGT rate of 14 percent.

Since companies don?t die, no estate duty is payable.

Having said that, however, if an individual is a shareholder of the company the value of the shares and the loan account are deemed as assets in his/her estate and the value as verified by the company?s accountant, together with any amount owing by way of loan account, will increase the value of his/her estate. Also, a 10 percent secondary tax on companies (STC) is levied on all profits distributed in the form of dividends.

Says Gilmour: "A significant benefit of this form of ownership is that a private company can accommodate a maximum of 50 shareholders which can include private individuals, trusts, close corporations and companies. Also, a company is a separate legal entity and, as such, any shareholder?s assets can only be attached to cover debts incurred by the company if the individual has stood surety for the company. Today, most financial institutions insist on personal suretyships being signed by individual shareholders in respect of any loans made by the financial institution to the private company."

Aside from the higher transfer duty and CGT, and taxable dividends, other negatives include the fact that companies have to be governed by the Companies Act 61/1973, need to be managed by a board of directors and the financial statements have to be prepared by an auditor and reviewed annually which makes the administration of this kind of ownership costly.

Heiberg notes that, in addition, subject to certain exceptions as set out in the Companies Act 61/1973, no financial assistance may be given by the company to a prospective shareholder for the purchase of any shares in the company and no bond may therefore be registered over company property as security for a loan by the company to pay for the acquisition of shares therein unless the company has complied with the requirements as set out in the Companies Act which includes a solvency and liquidity test as well as the requirement that a special resolution be passed by the members of the company and registered with the Registrar of Companies so as to authorise the transaction.

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