Residences and Primary Residence
Introduction and summary of when you can be taxed
Probably the most well known aspect about CGT is the fact that upon the disposal of your primary residence, up to R1million is excluded
from the CGT net. Exactly how this R1million exclusion works is probably the most misunderstood aspect of CGT. There are all kinds of apportionments that can take place, some in conjunction with others.
In order to appreciate the table set out below, we will introduce a relatively easy to understand circumstance, (in the numerical example immedaitely below), where the
capital gain is apportioned into its qualifying and non-qualifying exclusion elements. This is just one type of apportionment.
If a portion of your primary residence has been let out, that portion that has been let will not ordinarily qualify for the primary residence exclusion. It is not difficult to see why
- as the part that was let did not act as a primary residence. (Complicating the matter still further, is the fact that at one time you may have occupied the house as wholly a primary residence and then let out a
portion, and even further, you may at a later stage have let the entire house. We will ignore these complicating factors for now – we’ll start at the basics).
Assume you acquire a house on 1 October 2001 for R1.2million and you immediately let 25% of that house, the remainder you occupy as a primary residence
until such time that it is sold for R2million/R3million.
Sell for R2m Sell for R3m
Proceeds 2 000 000 3 000 000
Less Base cost 1 200 000 1 200 000
Capital gain 800 000 1 800 000
Apportionment of gain-
Taxable - Not qualifying for exclusion, (25%) 200 000 450 000
Gain qualifying for exclusion 600 000 1 350 000
Primary residence exclusion, (up to R1million) 600 000 1 000 000
Nil 350 000
Total taxable 200 000 800 000
Notes and observations relating to above example –
It is not the quantum of the exclusion that is apportioned; it is the capital gain, (or for that matter the capital loss
), that is apportioned into the element that qualifies to be excluded from the CGT net and into that that doesn’t.
The apportionment is based on the following logic – “How much of the capital gain/loss is attributable to the residence being a primary residence”. In the first case it is R600
000 and in the second case it is R1 350 000. (The R1million limitation then applies.)
It is evident that even if a residence does not act as a primary residence in its entirety, it is still possible to enjoy the full R1million exclusion, (as per the last column).