This question has been asked frequently by clients and my intention here is to clarify this issue for taxpayers out there.
The new credit act that was introduced during 2007 has truly changed the landscape of the property market, and indeed, this has now shifted from a sellers market to a buyers market overnight.
This created a scenario whereby rental property has become a goldmine of sorts, as more and more people are now renting, due to the financial difficulties of owning their own properties. This is truly a golden time for buying and letting, but in which entity should you be purchasing property?
As an Individual, Company, Close Corporation or Trust?
This question has been asked time-and-time again by prospective property owners, and for me it comes down to the basics. Are you purchasing property as an investment or are you simply speculating? Do you want to include these properties as part of your estate or not? What are the tax implications? These are the basic questions that you need to address.
Are you going to purchase the property for investment or are you intending to dispose of the property quickly for speculating? I do agree that the latter statement has become less enticing as it is currently a buyers market, and to sell property will probably not create maximum profit in your hands. But wait! The market will in future shift yet again and become a sellers market. The pendulum effect!
It appears to be much better to buy the property as an individual, as the profit you will have in your pocket after tax is much higher than as a company or a trust, but, there is one more aspect you have to look at closely. The perception exists that it would make more sense to purchase the same property in a company rather than a trust, doesn’t it? Not at all, although the net profit after tax would lead us to believe that indeed it is the case.
A trust can be utilised to "protect" property from estate duty and if the property is sold, the profits can be distributed to its beneficiaries at a maximum tax liability of 10%. It seems that the comparative benefit between a trust and an individual is therefore the same, but keep in mind that the transfer duty is vastly different on the purchase of a property.  For example on a R1 000 000 property, transfer duty for an individual is R25 000 vs. R80 000 for a trust.
It is therefore clear that the most favorable entity to utilise for the rental profit would therefore be a company or close corporation, but bear in mind that it depends greatly on the assumption that the individual tax rate is at a maximum rate of 40%, which in most cases it is not.
The final result of our example would be to utilise the Company or Close Corporation as the revenue-earning entity for purposes of trading, and the trust for ownership of the property. I must stress that each and every client that owns property or intends to buy property has different circumstances, and each one must be evaluated separately.

Morné Smit - CA (SA)