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.
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.