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Transfer your company's residence to your employee without paying Capital Gains Tax! Here's how

by , 22 January 2015
If your company owns your employee's primary residence (his home) and he wants to buy it from you, you don't have to pay Capital Gains Tax... If you meet certain requirements.

This means your employee can own his home privately, without costing your company thousands of rands in additional tax.

Keep reading to find how...

 

Here's how you can transfer your company's residence to your employee without paying Capital Gains Tax

 
Before I tell you how to dispose of a residency without paying CGT, let's first look at what a 'residency' is. 
 
According to the Tax Act, it's any structure where someone lives. This includes boats, caravans or mobile homes. It also includes separate garages, outbuildings, swimming pools and tennis courts connected to the building. 
 
So, if your company owns a house and lets your employees stay there, you can transfer it to them without paying CGT.
 
But you must first meet these three requirements.
 
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Three requirements your company must meet before you can transfer a residence CGT free
 
Your company or Trust can disposes of a residence tax free if:
 
The residence is someone's home, where one of more people live;
You're connected to the company or Trust; or
You liquidated your company or Trust within six months of the disposal date.
 
So what's the benefit of this for your company?
 

Here's how this CGT free transaction benefits your company

 
By transferring the residence to the employee living in the house  your company can enjoy the same benefit as someone privately selling their home. When a private person sells his home, he can excluded the first R2 million of any profit he makes. 
 
When you transfer a residence out of your company and meet any of the above criteria, you get to use this same rule. So, you don't have to pay CGT on the first R2 million. 
 
Sanlam.co.za says you must apply the two hectare rule here because you will have to pay CGT if the property is bigger than two hectares. 
 
There you have it. If your company owns a house that your employee lives in, don't try sell it to someone else. Rather transfer it to your employee so you can dispose of it without paying Capital Gains Tax.
 
To find out more about how you can reduce your company's CGT liability, check out Capital Gains Tax 101. It contains everything you need to manage your Capital Gains Tax so you never pay more than you should. 
 


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