There are three possible methods for determining the gain on this property.
Market value
Proceeds R4 250 000
Less: Market value R3 500 000
Gain R 750 000
Time Apportionment Base Cost
Proceeds R4 250 000
Less: Time-apportionment base cost R2 472 222
Gain R1 777 778
20% of Proceeds
Proceeds R4 250 000
Less 20%x proceeds R 850 000
Gain R3 400 000
You may adopt any of the three methods illustrated above but the market value method gives the lowest capital gain of R750 000.
You would not be liable for capital gains tax on the disposal of the residence because the first R2 million of any gain or loss on disposal of a primary residence is disregarded for capital gains tax purposes. Note that the market value method of determining the base cost will be available to you only if you valued the residence on or before 30 September 2004. The prescribed valuation form (CGT 2L) must have been completed and retained in the event of a SARS audit.
* Original cost + (Proceeds – Original cost) X Years before valuation date
Years before valuation date= 20
Years after valuation date = 16
= 250 000 + [(4 250 000 – 250 000) x 20/(20+16)]
= 250 000 + 2 222 222
= 2 472 222
Note that the number of years before valuation date in the above formula is limited to 20 years when an improvement to the property has been made in more than one year before the valuation date. This treatment compensates for the fact that the formula treats all improvements before valuation date as if they were made at the beginning of the period. Note also that a part of a year is treated as a full year.
SARS has published a time-apportionment calculator (TAB Calculator) on its website to assist taxpayers in determining the time-apportionment base cost of an asset. It is based on an Excel spreadsheet.
