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Will the primary residence exclusion apply to a property occupied 3 days a week?

12 February 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Our client owned an immovable property for 14 years. She stayed in that house from Friday mornings until Monday mornings; then she occupied another property from Monday afternoons until Thursday evenings. The first-mentioned property has now been sold and is the only property in her personal name. We would like to know whether the primary residence exclusion will apply to the sale of that property.

A: "Primary residence” is defined in para 44 Eighth Schedule and requires not only that the person hold an interest in that property which she uses for domestic purposes, but "ordinarily resides in it as her main residence”. 

Though the term "ordinarily reside” in the context of a residence is not exactly the same as ordinarily resident for determining tax residence, the principles are in our view the same. In Cohen v CIR 13 SATC 362 the court held that the question is on of fact and not of law and must be answered on the circumstances of each case. SILKE at 8.3.1, relying on UK case law, rejects the notion that it is a mere determination of time (i.e. is more time spent there than not). In Commissioner for Inland Revenue v Kuttel [1992] 2 All SA 151 (AD)the court held that ordinarily resident is where the person has his principal home or "real” home when returning from his or her wanderings. 

However, what makes the "primary residence” definition different is the fact that in addition to requiring that the person ordinarily reside in it, she must do so as her main residence (i.e. main structure that she lives in for domestic purposes). The latter may seem to impart a test of time (i.e. mainly lives there or more than 50% of the time) which in the current facts would result in the residence not being a primary residence even if this is the place where she will return to from all her wanderings. Due to this uncertainty it may well be advisable to apply to SARS for a non-binding private opinion in terms of s88 TAA. However for the purposes of the provisional estimate you may have to take a position from the above based on the risks involved to underestimate the liability and attract penalties in this regard. 

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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