Disposal of a primary residence
DISPOSAL OF A PRIMARY RESIDENCE
The disposal of a primary residence is an important topic in Capital Gains Tax (CGT) for any CTA student.
It is a fairly simple section but there are some areas that often challenge students, such as the application of paragraphs 47 and 49.
In the video below, we discuss an example where a taxpayer used a house:
- as a primary residence and a business asset for some time and
- 100% as a business asset for some period of time
It is very important to note that only the portion of the capital gain that relates to the primary residence will qualify for the primary residence exclusion of R2million (para45(1)(a)).
As a student it is thus important that you do the following when calculating the capital gain on the disposal of a primary residence:
- Calculate the capital gain that relates to the entire period the asset was owned
- Calculate the portion of the capital gain that was used for business. This amount must be taxed as a capital gain.
- Apply the primary residence exclusion (para45(1)(a)) only to the portion of the capital gain that is a primary residence
EXAMPLE
In the video below, we will discuss the following example:
On 1 October 2008, Mpho purchased a house in Randburg for R1 800 000 and immediately moved into the house with his family.
From 1 October 2008 until 1 October 2015 (7 years), Mpho stayed in the house with his family. During this time he used 15% of the house as consulting rooms for a business he runs as a sole proprietor.
Mpho and his family moved out of the house on 1 October 2015. He immediately started renting it out to a third party. Mpho rented the house to the third party from 1 October 2015 to 1 October 2019 (4 years). Mpho sold the house on 1 October 2019 for R4 500 000.
REQUIRED
Calculate the capital gain on the disposal of the house.
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