CGT on the sale of a farm which has a primary residence on it
19 February 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: Can someone advise me on how CGT works when a cattle farm is
sold and the homestead was a primary residence?
A: Where the primary residence is situated on land that is
larger than two hectares (such as a cattle farm), paragraph 46 Eighth Sch ITA
states that the primary residence exclusion still applies but only to the
extent that the land:
- Does not exceed 2 hectares;
- Is used for domestic purposes (e.g. surrounding gardens etc but
excluding land used for farming purposes); and
- Is disposed of at the same time. No apportionment method is prescribed and per clause
11.5.4. of SARS’
CGT Guide the method adopted must be logical and fair.
In our view it would be reasonable to use a similar calculation as used in in
para 33 Eighth Sch ITA as one of the methods available. This would result in
apportioning the base cost and proceeds on the same ratio as the private residence
is to the total farm on sale. For example, if the 150 hectare farm with
the house (1 hectare fenced for gardens etc.) was bought in 2002 for R1.5m and
it is sold in 2015 for R10m and a valuation is obtained that the house +
1 hectare garden has a market value of R1.5m, then the proceeds of R10m can be
apportioned of the basis of R1.5m as a ration of R10m and the R1,5m base cost
on the same basis to determine the capital gain against which the primary
residence exclusion can be applied.
Please note that if the property was used for non-residential
purposes as well during the period it was held, such as for rental purposes,
the primary residence exclusion must be apportioned for this rental period per
paragraph 49 Eighth Sch ITA.
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.