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.