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CGT on primary residence that was also rented out

Posted 11 November 2014 under Tax Questions


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I lived in a property for a number of years, then rented it out for a few more years after that, and I have now sold the property. It appears that CGT is only applicable to the pro-rata portion of the time that the property was rented out - thanks for the blogs and answers to previous questions on your site I was able to figure that one out. My problem is how to capture this in efiling. Do I pro-rata the base cost and proceeds and enter the reduced amounts? Or do I tick that it is a gain in lieu of a primary residence? I'm a bit stuck, so hopefully you can help.

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TaxTimTaxTim says:
13 November 2014 at 23:04

You would pro-rate the proceeds and the base cost yes so that you are arriving at the percentage of amounts used as your primary residence.


Tep says:
14 November 2014 at 9:35

Thanks for this Tim.

And then just to double check - would I need to declare 2 capital gains events in my ITR12: 1 event where I would capture the "primary residence" pro-rata proceeds and base cost, and 1 event where I would capture the "non-primary residence" pro-rata proceeds and base cost?


TaxTimTaxTim says:
14 November 2014 at 13:13

No, you would only deal with the primary residence. So apportion the Proceeds and Base Cost so that your actual profit reflects the primary residence portion.


Tep says:
14 November 2014 at 14:21

Hi Tim. I would like to only capture the primary residence portion on my tax return, but then how will SARS know about (and tax me for) the gain resulting from the time that I rented the property out (and was not resident)?


TaxTimTaxTim says:
17 November 2014 at 7:42

When did you sell the property, how long after living it in did you start to rent it out?


Tep says:
17 November 2014 at 9:40

I lived in the property for almost 3 years (2005 - 2007), and then rented it out for just over 5 years after that (2008 - mid-2013). I sold it mid-2013.

When I look at the number of months, I lived in it for 35% of the months and rented it out for 65% of the months. So from what I can gather I have to pay CGT on 65% of the gain, and then the primary residence exemption of R3m applies to the 35% gain. My overall gain is less than R2m, so essentially I shouldn't be paying any CGT on the 35% gain. But I do expect to pay CGT on the 65% gain.


TaxTimTaxTim says:
18 November 2014 at 16:38

If you have not lived in the house for more than 2 years before selling it then the actual primary residence portion falls away and your new home becomes your primary residence and the actual exclusion applies there.


Tep says:
18 November 2014 at 17:23

Hi Tim.

I'm not convinced with this answer, because I've been using the Comprehensive Guide to Capital Gains Tax on the SARS website, and it seems to say otherwise. In the section where it discusses not being resident in the last 2 years before selling it (paragraph45(4) - section 11.2.4 on page 325), it seems to be referring to the R2m exemptions (where if the proceeds are less than R2m, then none of the gains are taxed), not the exclusion of a gain from CGT.

There are other sections that cover the exclusion (where the first part of gains is not taxed) where you haven't been resident (paragraph 47 - section 11.6 on page 331, and paragraph 49 - section 11.8 on page 335). Both section have an example that has a taxpayer being resident for the first few years and then not living in the property for the remainder of the years, and then selling it. And they show that the exclusion applies to the time that the taxpayer was living in the property, but not when they weren't living in it. So they are only taxed on the gain for the time that they were not resident.

So I am sure that I can use the exclusion for the time that I lived in my property. And then I will pay tax on the gain when I was not resident. I just don't know how or where to capture this split in my ITR12 (because, unfortunately, the Comprehensive Guide doesn't cover how to capture the details, and I can't find this scenario in any of the Completing Your ITR12 guides).

I hope that this makes sense and I'm not off on some weird tangent. And I hope that you can help here, Tim?

Thanks


Tep says:
19 November 2014 at 9:26

Hi Tim.

I'm not convinced with this answer, because I've been using the Comprehensive Guide to Capital Gains Tax on the SARS website, and it seems to say otherwise. In the section where it discusses not being resident in the last 2 years before selling it (paragraph45(4) - section 11.2.4 on page 325), it seems to be referring to the R2m exemptions (where if the proceeds are less than R2m, then none of the gains are taxed), not the exclusion of a gain from CGT.

There are other sections that cover the exclusion (where the first part of gains is not taxed) where you haven't been resident (paragraph 47 - section 11.6 on page 331, and paragraph 49 - section 11.8 on page 335). Both section have an example that has a taxpayer being resident for the first few years and then not living in the property for the remainder of the years, and then selling it. And they show that the exclusion applies to the time that the taxpayer was living in the property, but not when they weren't living in it. So they are only taxed on the gain for the time that they were not resident.

So I am sure that I can use the exclusion for the time that I lived in my property. And then I will pay tax on the gain when I was not resident. I just don't know how or where to capture this split in my ITR12 (because, unfortunately, the Comprehensive Guide doesn't cover how to capture the details, and I can't find this scenario in any of the Completing Your ITR12 guides).

I hope that this makes sense and I'm not off on some weird tangent. And I hope that you can help here, Tim?

Thanks


TaxTimTaxTim says:
20 November 2014 at 8:09

Apologies for the delayed response - we were checking everything as this is a particularly difficult area of tax law and the ITR12 is, in our opinion, not catered for may "different" types of transactions. SARS does not always afford the taxpayer the best opportunity of being able to file their correct information.

We would suggest completing two parts of the capital gains sections. So one for the "primary residence" portion and one for the non residence portion. Just do the calculation before hand and if SARS request documents send them a letter and the calculation.


Tep says:
20 November 2014 at 9:25

Thanks so much for checking it out and for your response. I really appreciate that you took the time to give a well thought-through suggestion.


TaxTimTaxTim says:
20 November 2014 at 16:59

Only a pleasure! We are here to give the best and most accurate advice!


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Hello.
Is it me you're looking for?
I'll help you do your Tax Return with Confidence
Quickly, Easily
And Correctly
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Tax Online with Expert Help from Me, Step-by-Step.
LEARN MORE