Updates: Details

With the kind permission of  the Accounting Firm PKF Durban – Tax Department – we set out hereunder for general information their article dealing with a proposed amendment to Para 51A of the  Eighth Schedule of the Income Tax Act to introduce Residence Roll-Over Relief:

"Paragraph 51A was introduced in 2010 in order to allow companies and trusts to transfer a residence to a connected person without triggering any tax consequences for either party (“the roll-over relief”). The roll-over relief applies to the transfer of a residence between 1 October 2010 and 31 December 2012.

There are a number of requirements which must be met in order to qualify for the roll-over relief. One of these requirements is that one or more natural connected persons must have ordinarily resided in that residence from 11 February 2009 until the date of disposal of the residence in terms of Par 51A (“the qualifying period”). The term “ordinarily reside” was not defined. However, the meaning ascribed thereto is similar to the meaning ascribed to the term “ordinarily resident”, i.e. the place to which a person returns after his wanderings. This would mean a person’s primary place of residence

Based on the current wording of par 51A a holiday home owned within a trust or company would, therefore, not qualify for the roll-over relief since a holiday home is not the place where a natural person ordinarily resides. However, as evidenced in the Guide to the Disposal from a Company or Trust issues by SARS, this was not the legislator’s intention.

In order to correct this it has been proposed, in the Draft Taxation Laws Amendment Bill, 2011 (“The 2011 TLAB”), that the requirement that a natural person must have ordinarily resided in the residence during the qualifying period be deleted. This proposed amendment will be effective retrospectively to 1 October 2010. Note however, that the overriding requirement is still that the residence must have been mainly (i.e. more than 50%) used for domestic purposes.

The 2011 TLAB is currently still in draft format. Past experience has shown that numerous changes are made to the TLAB prior to promulgation, and therefore we cannot say with absolute certainty that the proposed amendment will be promulgated. However, based on our understanding that the proposed amendment reflects the intention which SARS had with the roll-over relief when originally introduced we anticipate that it will be enacted."

Written by: ROB WHITE