Will the sale of my primary home be subject to CGT?
What is a primary residence?
- It must be a structure, including a boat, caravan or mobile home, which is used as a place of residence by an individual.
- An individual or special trust must own an interest in the residence.
- The individual with an interest in the residence, beneficiary of the special trust, or spouse of that person or beneficiary must ordinarily reside in the home and use it mainly for domestic purposes as his or her ordinary residence.
- The exclusion applies only to a maximum of two hectares.
- The land must be used mainly for domestic or private purposes together with the residence.
- The residence must be disposed of at the same time and to the same person as the land on which it is situated.
I enter into a long-term lease for a building which I then use as my primary residence. I then sell this right for a profit of R2 million. Can I claim the primary residence exclusion?
Is the primary residence exclusion an unlimited exclusion?
- The exclusion will not apply to any capital gain or loss in excess of R2 million for the 2018 and 2019 years of assessment. To the extent that the gain exceeds R2 million, the excess must be taken into account as a capital gain. For example, if the gain is R2,5 million, R2 million must be disregarded while R500 000 will comprise a capital gain (paragraph 45(1) of the Eighth Schedule).
- You may not claim the primary residence exclusion for more than one residence at a time (paragraph 45(3) of the Eighth Schedule).
- The exclusion will apply only to a capital gain or loss attributable to a maximum of two hectares of land used together with the primary residence for domestic or private purposes. For larger pieces of land or land that is not used for private or domestic purposes the capital gain or loss must be apportioned. The primary residence exclusion will reduce only the qualifying portion of the capital gain or loss (paragraph 46 of the Eighth Schedule).
- The exclusion will not apply to any capital gain or loss in respect of a period on or after the valuation date (1 October 2001) when the person was not ordinarily resident in the primary residence (paragraph 47 of the Eighth Schedule).
- The exclusion will not apply to any capital gain or loss in respect of that part of a primary residence that has been used for the carrying on of a trade after the valuation date (paragraph 49 of the Eighth Schedule).
Will it apply to a residence held through a company or trust?
What happens if I dispose of my primary residence in a joint estate, and I have a capital gain in excess of R2 million during the 2019 year of assessment?
|Proceeds||R2 000 000||R2 000 000||R4 000 000|
|Less base cost||R 500 000||R 500 000||R1 000 000|
|Gain||R1 500 000||R1 500 000||R3 000 000|
|Less exclusion||R 1000 000||R 1000 000||R2 000 000|
|Capital gain||R 500 000||R 500 000|
R1 000 000
What happens if I no longer ordinarily reside in my home because I have moved to a new home and am trying to sell the old one?
- At the time the residence was your primary residence it had been offered for sale and vacated due to the acquisition or intended acquisition of a new primary residence
- The residence was being erected on land acquired for that purpose in order to be used as your primary residence.
- The residence had been accidentally rendered uninhabitable (for example, because of a fire).
- Your death (this enables your deceased estate to claim the primary residence exclusion).
- The residence must not be let for more than five years.
- You, your spouse or a beneficiary of a special trust must have resided in the residence for a continuous period of at least one year before and one year after the period of absence.
- You treated no other residence as a primary residence during your absence.
- You were temporarily absent from the Republic or employed or engaged in carrying on business in the Republic at a location further than 250km from the residence.
I work in Johannesburg where I bought a townhouse to stay. My wife and three children still stay in Umtata, my hometown, where I have my main home. Will the sale of my townhouse qualify for the primary residence exclusion when I move back to Umtata?
I own a flat through shares in a share block company. I reside in the flat when on holiday, and rent it out the rest of the year. What will the CGT implications be if I sell my shares in the share block company?
I am married to three wives in terms of customary law. My wives stay in three different homes that I own. Which home is my primary residence for CGT purposes?
If a salaried employee owns a house that they live in and own a second property that was let out, are they liable for capital gains tax on the second property which they sold?
The same scenario but assume the taxpayer gives the tenant notice on the second property and then moves into the second property and lives in it. The taxpayer then advertises the second place for sale. Is the taxpayer liable for capital gains tax on the second property when it is sold?
Is there a period that a taxpayer must live in a property for it to be classified as their primary residence?
I bought a property smaller than 2 hectares in Bantry Bay in May 1980 for R98 000. Since then we have lived in the house as our primary residence. Between May 1980 and 1 October 2001 we made some improvements amounting to R152 000. The market value of the property on 1 October 2001 is R3 500 000. Would I be liable for CGT if I sold the property for R5 million on 30 September 2018?
Market valueProceeds R5 000 000Less: Market value R3 500 000Gain R 1 500 000
Time Apportionment Base CostProceeds R5 000 000Less: Time-apportionment base cost R2 750 000Gain R2 250 00020% of ProceedsProceeds R5 000 000Less 20% x proceeds R 1 000 000Gain R4 000 000
* Original cost + (Proceeds – Original cost) X Years before valuation dateYears before valuation date= 20Years after valuation date = 18= 250 000 + [(5 000 000 – 250 000) x 20/(20+18)]= 250 000 + 2 500 000= 2 750 000