Avoid property tax: Get another wife, earn timeshare
This week in Realestateweb's Tax Bites: Great news - there are still ways to avoid paying capital gains tax on property deals.
Get more wives. Realestateweb's favourite Rhodes University tax professor has found another compelling reason for South Africa's President Jacob Zuma to keep several wives - potentially huge tax savings. In fact, if you're a property investor or speculator and you'd like to chop your capital gains tax bills when you sell, you should consider a life of polygamy too.
Here, said Matthew Lester in his Sunday Times "Tax Talk" column, is how it works: "A family can have four primary residences. I kid you not. And this is not achieved using residential property companies. In fact, you will pay a mountain of transfer duty and capital gains tax if you do."
And, continued Lester, a family can have estate duty exemption of at least R14m.
You don't need a "smart suit" to dream up "complicated paperwork". "The recipe is simple: take three wives and buy them each a house, and one for yourself. The primary residence allowance specificies that you must own the house and live in it. There is no donations tax on an inter-spouse donation. And there is no estate duty on an inter-spouse bequest."
Lester said there is even provision for the "portable spouse's estate duty exemption". This means, he said, that you can use up your pre-deceased spouse's allowance if he or she didn't.
Hawu! Now, who said polygamy was for poor, uneducated peasants? And who said tax compliance is too dull to keep the mind alive? Not in South Africa...
Holiday timeshare can't necessarily be taxed if your employer gives it to you. That was the upshot of a recent court judgment in favour of timeshare organisation RCI, which gave points to employees - which in turn allowed them to take holidays at resorts. Tax hot shot Time Desmond explained why RCI won on appeal from the Cape Town Tax Court in an article on Realestateweb's sister website MoneywebTax. The director of tax and commercial departments at Garlicke & Bousfield Inc said the taxpayer, Vacation Exchanges International (Pty) Ltd trading as RCI, carried on a timeshare exchange business. Its members were able to "bank" timeshare rights in exchange for points that they could then use to obtain timeshare rights at other resorts. RCI granted a number of these points to its employees, which allowed them to utilise the resorts.
"The South African Revenue Service (Sars) raised an estimated employees' tax assessment against RCI, on the basis that the provision of points constituted a taxable benefit for the employees. Sars determined a market value for the points. In the Tax Court, RCI firstly contended, that although the points constituted a deemed taxable benefit, they had no cash equivalent value and therefore were not subject to employees' tax. RCI then also contended that Sars had utilised the wrong remedy in assessing it, rather then its employees directly. The Tax Court found in favour of Sars and dismissed RCI's appeal. RCI then appealed to the Western Cape High Court."
Said Desmond: "The Western Cape High Court first considered the second of RCI's contentions, which had been added at the hearing before the Tax Court. This is because, if it were successful, it would determine the case in favour of RCI, without any need to consider the other contention. The employees' tax legislation contains a remedy for Sars to re-determine the tax due, on the assessment of employees, if it believes that their employer did not correctly determine the cash equivalent of a taxable benefit. RCI contended that this was the only approach available to Sars in the present case. Sars argued that it was one of the approaches available to it, along with the option of assessing RCI (as employer) directly."
The Western Cape High Court agreed with RCI, finding that "the specific remedy of redetermination on assessment of the employees, was an exclusive one". Sars' approach of assessing RCI was then, in the circumstances, not permitted in terms of the legislation. The estimated employees' tax assessment against RCI was therefore set aside.
"Sars had raised various policy considerations in support of allowing it to choose between alternative approaches. The Western Cape High Court stated that, if that were required, the legislation should be amended accordingly," added Desmond.
Also read: SA tax amnesty could boost property stock, penned by CENTURY 21 boss Colleen Gray. She reckons many prime properties will come onto the market, as wealthy folk take advantage of a rare tax window.
Last week in Tax Bites: Renting out a property for income? Indispensable tax advice. Tell us whether you like this feature by sending a note to news@realestateweb.co.za. Use the same address if you'd like to contribute your own tips, would like us to hyperlink to tax articles on your website or be a guest expert on Realestateweb.
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Comments
to put her husbands in her houses?
by Shirley Armstrong on January 25 2010, 14:32
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It's a man's world
by Girl on January 26 2010, 07:31
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We would like to rent out our home to 2010 visitors but will not be able to accurately (to the required 90%) forcast what possible income we may derive. If we take a guess/estimation at a possible amount, we will need to pay up front provisional tax on . .more
by Take heed 2010 property/room lettors on January 27 2010, 09:10
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