plan4cgt - Residences -  what makes it a primary residence

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Lower level - Apportionments - period; usage; size; joint owners

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On this page - Essential elements determining whether it is a primary residence.

 

 

How the Primary Residence Exclusion Works - Overview

The very basics of CGT and where residences fit in

Capital gains tax (CGT) is triggered on the disposal of an asset. Even a part-disposal of an asset is caught. For more on how to calculate capital gains and so on see fundamentals.

Capital gains and losses made on certain assets, (“personal use assets”), are excluded from the CGT net. Immovable property, however, is an exclusion from the “personal use asset” exclusion. This means that the capital gain/loss made on the disposal of a primary residence falls into the CGT net.

What is excluded is R1million of the capital gain/loss that is attributable to your primary residence! However, the mechanics of the primary residence exclusion is fairly complex.

Important elements relating to the R1million primary residence exclusion

As a general rule, only one residence may be a primary residence at any one time. There are exceptions to this rule.

First you have to determine whether or not you have a residence that qualifies as a primary residence. There are four basic requirements, they are set out in the table below. In most cases you will find that once requirement 1 is met, the primary residence condition will be fulfilled. However, even when you do proceed smoothly through the table it does not mean that you automatically have a R1million exclusion coming your way. There could well be apportionments that complicate the process.

What was that thing you sold? Was it a primary residence?

Considerations

Answer

Are you a qualifying person i.e either natural person or special trust?

Answer must be “Yes”. If “No” look no further - the exclusion will not apply.

Do you have a qualifying “interest’ in the asset? (It is the sale of the interest, (whichever one applies) that qualifies for the primary residence exclusion). For example, you could sell your right in a 99 year lease and that would qualify for the exclusion.

Qualifying “interest” is either

Ownership of the property.

A direct interest in a shareblock company or a similar entity if it is not a resident. or

A right of use or occupation.

See note 1

Is there a residence? Appurtenances attached to the residence such as tennis courts and swimming pools qualify as part of the residence.

Must be a place that is reasonably permanent. Caravans, boats, mobile homes qualify, it seems that tents wont.

Is it a primary residence?

To be a primary residence both factors below have to be present-

The qualifying holder of the interest or his/her spouse must reside or have resided there as the main residence at any time from 1 October 2001, (during which time the qualifying interest was held).

AND

That residence must be used, or have been used, mainly for domestic purposes.

 

Note 1 to determination of primary residence table, (this will seldom apply)

 - Even if your answer to have you got a qualifying interest is “Yes”, if that interest is -

    A right under a mortgage bond, or

    A right or interest in a trust or an asset of a trust, (other than a lessee who is not a connected person to that trust) then

You will not have a qualifying interest in that residence.

 

If you have not successfully determined that you have disposed of a primary residence for whatever reason, (for example, the residence is owned by your company or you or your spouse never resided in that residence as the main resdience from 1 October 2001 onwards), then the full gain will be subject to the CGT process and no part of the R1million exclusion will apply.

If you have successfully determined that you disposed of what was at one time, or what was immediately prior to the disposal, your primary residence, the primary residence exclusion will apply. The question is now- Will the capital gain/loss be apportioned??????. It is in this area of the primary residence exclusion that things get a little tricky!

Apportionments of primary residence gains/losses - overview

There are four types of apportionments, when taken on their own they are fairly easy to work through. However, when the apportionments act in combination with one another it gets pretty complicated! There are four types of apportionments.

Period apportionment.

Usage apportionment.

Size apportionment.

Joint ownership apportionment.