Transfer of holiday homes out of trusts and companies

There has been much debate in recent weeks as to whether the transfer of holiday homes out of companies or trusts would qualify for relief from CGT and other taxes in terms of the draft concessions in the current Taxation Laws Amendment Bill.

This is because the wording adopted in proposed new paragraph 51A is, to a degree, ambiguous. The relief is not expressly limited to a transfer of a ‘main’ or ‘primary’ residence. Instead, paragraph 51A speaks of a residence ‘mainly used for domestic purposes’ in which one or more natural persons have ‘ordinarily resided’.

“The problem with the expression ‘ordinarily resided’ is that it’s not incompatible with a taxpayer saying, for example, that as part of his regular, ordinary life, he spends several weeks a year in his cottage in Hermanus,” says Dylan Buttrick, Tax Specialist at global audit, tax and advisory firm Mazars.

Or, perhaps the taxpayer is a commuter, who maintains a family home in Cape Town where he spends the weekends with his family, but works in Johannesburg, where he owns an apartment and lives during the week.

“If asked where he ‘ordinarily resides’, this taxpayer could quite fairly say that he ordinarily resides in both homes,” says Buttrick.

The debate – and the attendant confusion – says much about the merits of using plain language in tax legislation. If Parliament wanted to exclude holiday homes, or other secondary homes, it could have done so by expressly confining the relief to your ‘main home’,” Buttrick concludes.