The financial implications of purchasing the member's interest
and claims in a Close Corporation or shares in a Company owning
residential immovable property are:-
Due to the fact that anybody who purchases a Close Corporation, Company or Trust from now on onwards will have to pay transfer duty, it is unlikely that anybody will in the future purchase a Close Corporation, Trust or Company from a third party because of the added risk factor involved in purchasing Close Corporations, Companies and Trusts. The risk factor is that there may be debts that the purchaser does not know about.
Accordingly, if the Purchaser purchases the member's interest and claims in the Close Corporation or shares in the Company and wants to sell the property in the future, the Close Corporation, Company or Trust will almost certainly have to sell the property instead of the member's interest and claims in the Close Corporation or shares in the Company.
If the Close Corporation, Company or Trust sells the property it will pay Capital Gains Tax of 14,5% on the capital profit which for practical purposes is either:-
The difference between the selling price and the price that the property was first bought by the Close Corporation (not the price that the purchaser paid to purchase the Close Corporation); or
The difference between the selling price and the value of the property on the 1st of October 2001.
In addition the Close Corporation or Company will have to pay STC (Secondary Taxation on Companies) on any profits made (again on the basis set out in as in 3a and 3b above) if it wants to pay the monies over to the owner of the Close Corporation or Company. The STC is calculated at 12.5%. Accordingly the purchaser could effectively end up paying over almost 27.5% of the profits to the Receiver of Revenue when he sells the property in future.
Accordingly if a transaction is concluded after the 13th of December 2002 we strongly suggest that the purchaser purchases the property in the purchaser's own name and does not purchase the Close Corporation or Company. If the contract was concluded before the 13th of December 2002 we would still strongly suggest that the purchaser rather purchases the property instead of the member's interest or shares as the saving in transfer duty will be more than off set by the taxes which have to be paid at a later stage. Obviously if the financial situation is such that it is difficult or impossible to proceed on the basis of now paying transfer duty, then the purchaser must proceed with the purchase of the member's interest in the Close Corporation or shares in the Company.