Share Blocks and Body Corporates – Definitions, Differences and Tax Exemptions

In terms of section 7(1) of the share blocks control act, no 59 of 1980 (“the act”), the main object and business of a share block company are to operate a share block scheme in respect of immovable property owned or leased by it.

In a share block scheme, individuals purchase shares in a company that owns a specific property or properties.  For this purpose, a share block scheme involves a share that confers a right to, or an interest in, the use of specified immovable property, whilst a body Corporate is the collective name given to the owners of the units and common property within a sectional title scheme.  

A body corporate and a share block company are two different legal entities in South Africa. A body corporate is an entity that manages a sectional title scheme while a share block company is a company that owns a building and sells shares in that building to individuals who then become shareholders of the company. 

Share Block and Body Corporate Exemptions 

Share block and body corporate companies qualify for exemptions under section 10(1)(e)(i) but it is limited to the levy income received by or accrued to the entities. Levies received by or accrued are the amounts collected by the entities from their members to pay certain expenditure which arises from the management of the collective interests of the members.

Were it not for the share block or body corporate that manage the collective interests, the members would be responsible for paying and administering their share of the expenditure. Receipts and accruals from a source other than levy income will be subject to income tax. 

The basic exemption of an amount up to a maximum of R50 000 [section 10(1)(e)(ii)] is applicable to all the receipts and accruals other than levy income of the entity. The basic exemption came into operation on 1 January 2009 and applies from the commencement of years of assessment ending on or after 1 January 2009.

These entities are required to register for income tax purposes and submit annual income tax returns even if they are unlikely to have an income tax liability. 

Share Block / Body Corporates and Specific Types of Taxes 

As from the commencement of years of assessment ending on or after 1 January 2009, any body corporate, share block company in section 10(1)(e) is excluded from the definition of provisional taxpayer and not required to submit provisional tax returns.  

Share Blocks and body corporates as referred to in section 10(1)(e) are exempt from donations tax  under section 56(1)(h)and all capital gains and capital losses made on the disposal of assets must be considered in determining a taxable capital gain or assessed capital loss unless excluded by specific provisions.

CGT forms part of the income tax system and a taxable capital gain must be included in taxable income. A body corporate and a share block company have an inclusion rate of 80%.