Clearing up capital gains tax

Many people have a misconception when it comes to Capital Gains Tax implications associated with the sale of the house in which they reside.

The misunderstanding is that when selling the house in which you reside you will not have to pay any CGT on such sale. While this may be the case for certain sellers, it is not guaranteed that there will be no CGT on the sale of a primary residence.

Generally, a natural person and a special trust must disregard capital gains and capital losses of R1.5 million on the disposal of a primary residence. Therefore, capital gains or capital losses will be taxable to the extent that they exceed the R1.5 million exclusion. A primary residence is defined as a residence:

a) In which a natural person or special trust holds an interest; and

b) Which that person or a beneficiary of that special trust or a spouse of that person or beneficiary:

(i) Ordinarily resides or resided in as his or her main residence; and

(ii) Uses or used mainly for domestic purposes.

It should be noted that a person may only have one primary residence at any time. Furthermore, where the property is held by more than one person the exclusion should be apportioned between the persons, ie, where the property is held by a husband and wife, each will receive an exclusion of up to R750000.

The taxpayer will be entitled to the R1.5 million exclusion each time a primary residence is sold as the exclusion is not a once-off exclusion.

Susan Pederson Horn is a PriceWaterhouseCoopers East London tax consultant.

Article by: Susan Pederson Horn, Daily Dispatch