Below we take a look at Capital Gains Tax, particularly relating to the primary residence exclusion. What we’ve covered are some of the most pressing questions asked by our users on our help-desk. Take a few minutes to read the Q&As. Hopefully what has been unpacked in these Q&As will benefit and assist you with any uncertainties you might have experienced regarding this topic.
1. I bought a house in December 2013 and in November 2015; I bought a second house which was registered in my name in February 2017. The intention for the second house was to receive rental income, but we moved into it in March 2016 and the first house was then empty. However, a short while later, I decided to sell the first house. I haven't had any tenants staying in the first house. We stayed in the first house since I bought it, for over two years. Will I be liable for capital gains tax, or will the first house still be regarded as primary residence, since I didn't have tenants there?
Please refer to our Capital Gains Tax Calculator, this property is still regarded as your primary residence so you qualify for the primary residence rebate.
2. I recently sold my home in South Africa for R6 500 000 on 5 April 2019. I purchased this property in 2006 for R3 500 000. When would I need to submit this to get CGT assessed? In addition to the R2 000 000 primary residence exclusion, what is the 2019 annual exclusion?
You would pay CGT on the gain – you can work this out by taking R3 000 000 less the R2 000 000 primary exclusion, which equals R1 000 000. Then you would deduct the R40 000 annual exclusion and then include 40% of the remaining gain in your taxable income and pay tax on this amount. If you’re a provisional taxpayer, you should include the taxable portion of the capital gain in your estimate of taxable income when you submit your first IRP6 for 2020. If you’re not a provisional taxpayer, you must include the capital gain details in your 2020 ITR12 submission.
3. I inherited a property, which I subsequently sold. I don’t know how to work out the base cost of the property because I didn’t pay anything for it.
When you inherited the property, it would have had a market value. This would be your base cost for the property when calculating the Capital Gains Tax. In order to obtain the value of the property on the date you inherited it, check with the executor of the estate. The estate would have paid Capital Gains Tax on this property so a value would have been set.
4. What's the difference between Capital Gains Tax and Income Tax? Which of the two does Retail Forex Trading fall under?
Capital Gains Tax forms part of Income Tax – it’s not a separate tax. However, the way it’s calculated on a gain uses a specific inclusion rate of 40%. Forex Trading for the purposes of making a profit, will be treated as a revenue activity. The gains from this activity must be included in your taxable income and will be taxed in the same way as your other income e.g. salary. If the forex trading was for investment purposes (i.e. the intention was to buy forex and hold for 3-5 years as an investment) then this would be treated as a CGT transaction and the special inclusion rate would apply and hence the tax outcome would be different.
5. My husband and I are married out of Community of Property. We jointly owned a property which we recently sold. How do we declare the capital gain on our respective returns? Is the primary residence exclusion split between us?
You must both indicate on your returns that the property is jointly held. You must both declare 100% of the proceeds and base cost; SARS will split the gain, as well as the primary residence exclusion on assessment between you both i.e. you will each receive R1m primary residence exclusion. However, you will each receive your individual annual exclusion of R40 000.
6. I moved out of my primary residence and bought a new home which I moved into in August 2018. My original home was vacant for almost two years while it was on the market. I eventually sold it recently; do I still qualify for the primary residence exclusion even though I have been living in a new primary residence for almost two years?
Generally, a person is not entitled to more than one primary residence at the same time. However, there is an exception which applies to your situation: if you put your house on the market and moved out into a new primary residence, the original home is still regarded as your primary residence and will be eligible for the full primary residence exclusion so long as it is sold within 2 years of you moving out.