Bought a house for less than it is worth?
We are in the process of buying a family property out of a trust. I would like to know if Sars can claim donation tax from us if the family agreed that we can buy the property for less than the actual worth of the property. We got consent from all family members to buy the property for R300 000. The estate agent valuated the property between R400 000-R700 000.
Are we liable for donation tax?
The income tax act provides for a donations tax exemption ((56(1)(l) of the Income Tax Act) if any property is disposed of under and in pursuance of any trust. The effect of this exemption is to ensure that no donations tax is payable when the trustees dispose of property in terms of a trust deed to any person.
Therefore, you need to establish whether the family trust deed permits such a disposal. If so, this type of disposal will not attract any donations tax payable by the trustee.
However, there are other tax consequences that may arise for the trust, namely capital gains tax. In terms of the income tax act, the trust will be deemed to have disposed of the property at market value, despite the fact that the actual proceeds may be less. This means that the trust may incur a substantial capital gains tax/ income tax liability from such a disposal, and, may be left cash strapped when it comes to paying such taxes (except if the taxable gain is vested in the tax beneficiaries).
*Madeleine Schubert is an attorney at Shepstone & Wylie's corporate & commercial law department.