Thursday, 13/6/2024 | 21:48

Buying property in a Close Corporation

The bullet points below provide a summary of the legal consequences of buying property or doing business in a Close Corporation (CC):

  • Governed by the Companies Act of 2008 (Please note that no new Close Corporations may be incorporated after 1 May 2011. Close Corporations in existence at this time will continue to exist indefinitely. New companies only can be registered after 1 May 2011. A Close Corporation can convert to a company without any payment in terms of the Companies Act of 2008.)
  • Any changes to a Close Corporation still have to be made in terms of the Close Corporations Act for the following:
    • CC Amendments (CK2/CK2A)
    • Letter for accounting officer resignations
    • Liabilities exceed assets letters
    • Annual returns
  • Managed by Members of CC who are also registered as owners and listed as part of registration process
  • Established by Founding Statement
  • Financial statements prepared by Accounting Officer and no legal requirement to provide audited financials
  • Not more than 10 members, and members interest can only be owned by an individual or a Trust, provided that the Trust has no more than 10 beneficiaries
  • As the assets and liabilities relating to the property/business are that of the close corporation, the members are not individually liable for the liabilities of the Close Corporation except in certain defined situations as set out in legislation. Most financial institutions, however, will insist on personal suretyships being signed by the members of the CC. Therefore, if the terms of the loan are not met and the lender sues in terms of the mortgage bond and the lender does not receive the outstanding balance owing to it from the sale in execution, the individual members will be held liable in their personal capacity for any unrecovered balance.
  • If the members are individuals, then their member's interests and loan accounts in the property owning close corporation can be attached by any of their creditors, i.e. anyone they may owe money to, like doctor's, retailers, banks, spouses in divorce matters etc


  • Pays transfer duty at the same rate as natural persons 
  • Capital gains tax:
    Inclusion rate: 80% Income tax rate: See SARS website for up to date rate.  Effective rate: 22.4%
  • Close corporations do not die, therefore no estate duty is payable. However, if an individual is a member of the close corporation, the value of the member's interest and the loan account in the CC are assets in his/her estate and the value as verified by the close corporation's accountant, together with any amount owing by way of loan account will increase the value of his/her estate for estate duty purposes.
  • Dividends tax of 20% is payable on all profits distributed by the CC in the form of dividends to members



Other Tax Considerations:


No transfer duty is payable if the seller is registered for VAT (and the property is part of the operations for which the seller is registered), but VAT at the rate of 15% is payable. If the contract does not specify that the VAT is to be paid over and above the purchase price, then it is deemed to be included in the purchase price.

If the property is sold as a rental enterprise or as a going concern e.g. a guesthouse, the deed of sale must contain certain specific provisions and may be zero rated for VAT. This means that no transfer duty or VAT is payable.

If the purchaser registers for VAT, then the Vat (or the transfer duty) can be claimed back as an input credit in certain defined circumstances.

Income Tax:

If a property investor does not acquire a property with the intention of holding it for an indefinite period or for rental purposes, but with the intention of selling it to make a profit, then SARS may well regard the investor as a dealer and levy income tax at the investor's tax rate on the profit. Capital gains tax will not apply if income tax is payable.