Perhaps you made the decision to buy a property in the name of a company registered with the Companies and Intellectual Properties Commission (CIPC). At the time when most people used this legal vehicle, it seemed like a wise decision as it saved transfer duties, it was easier to sell shares or membership and it was used to secure a legally sound investment. Many property owners opted for this route in recent years so that they could use the property to generate rental income, which in turn would be ploughed back into the business account, or possibly even to protect it from creditors.
However, a very important, yet unfamiliar, requirement concerning properties registered in the name of a company has been highlighted by attorney firm De Beer & Claassen: “All companies and close corporations are required by law to submit their annual returns with the Companies and Intellectual Properties Commission (CIPC) within 30 days of the anniversary date of its incorporation. Failure to do so will result in the CIPC assuming that the company or close corporation is no longer doing business or is not intent on doing business in the near future.
According to the firm, a company or close corporation may be referred for deregistration in the following circumstances:
- Upon voluntary application by the company / close corporation itself.
- If the CIPC believes that the company or close corporation has been inactive for 7 years or more.
- If annual returns are outstanding for more than 2 successive years
De Beer & Claassen emphasises that non-compliance with the submission of annual returns can accordingly lead to de-registration of a legal entity without consent of the members or directors of such a legal entity.
Riaan van Deventer, Head of Real Estate at Engel & Völkers Southern Africa, urges all homeowners to whom this requirement would apply to take note: “Don’t always presume your auditors will bring this to your attention or submit these annual returns. The onus and responsibility is fully on you as the director of the company ((Pty) Ltd) or as a member of the close corporation (CC) to ensure your company’s annual tax returns have been submitted on time. Ignorance of the law is no excuse, and you need to be aware of the requirement for submitting annual returns with the CIPC to avoid de-registration of your company.”
De Beer and Claassen earnestly advises homeowners to urgently check with the CIPC to ensure their company is still ‘alive’. Otherwise you may go to the effort of marketing the property, find a satisfied and qualified buyer, and at the stage when the transfer of the house should take place, only to then, establish that the property is not legally yours, as it has been de-registered and the transfer of property cannot take place. This could have been avoided if you were legally compliant, Van Deventer explains.
The Act makes provision to apply for reinstatement of a company, however, this is a costly and time-consuming exercise and needs to be managed by an attorney. They also cannot guarantee that the original name has not been taken by new owners, and this can encumber the whole process of reinstatement even further.
When deciding how to register your property, it is important to know what the differences are between buying in a company, trust or as a natural person, as well as the pros and cons of each option.
Van Deventer says that STBB attorneys explain these different arguments in detail on their website:
- Registering your property as a natural person allows for Capital Gains Tax (CGT). Also, the first R1.5 million of profit is exempt of tax if the property is a primary residence. Another pro is that there are no auditors or accounting fees. The downside of this method is that the R1.5 million tax exemption does not apply to second or further properties. Estate duty is also payable on death.
- Registering your property in a company allows you to, atthe time of acquisition of the immovable property, sign the agreement of sale on behalf of a company “to be formed”. The downside of this method is that there is a higher rate of transfer duty and CGT payable than by individuals. Annual financial statements must also be submitted.
- Registering your property as a trust is an effective estate planning tool. Your assets are protected from attachments, and the trust does not need to be audited, and is therefore a more cost effective option than a company. The cons of this option are that the highest rate of CGT is applied to profits on the sale of the property taxed in the hands of a trust. Also, income tax is levied at a flat rate which is more than you would pay as an individual or if the property was held in another entity.
The decision as to which entity to buy your property in is a complicated legal one, it is highly recommended that the purchaser consults an attorney prior to signing an agreement of sale in order to obtain expert advice.