Primary residence 'exemption'
11 May 2012
Posted by: SAIT Technical
By Michael Stein (Friday Page 11 May 2012)
Paragraph 45(1)(a) of the Eighth Schedule to the Income Tax Act provides that a natural person and a ‘special trust' must disregard capital gains and capital losses to the extent that they do not exceed R1,5 million and arise from the disposal of a primary residence. Note that both capital gains and capital losses must be disregarded up to the relevant amount.
When more than one natural person or special trust jointly holds an interest in a primary residence at the same time, the total capital gain or capital loss to be disregarded on the disposal of the residence by all of them collectively may not exceed R1,5 million, in terms of para 45(2). They will, therefore, have to apportion the capital gain or loss among them.
The Rates and Monetary Amounts and Amendment of Revenue Laws Amendment Bill 2012 proposes that the amount to be disregarded be increased from R1,5 million to R2 million as from 1March 2012.
In terms of para45(1)(b), a natural person or a special trust must also disregard a capital gain determined on the disposal of a primary residence of the natural person or special trust if the proceeds from the disposal of the primary residence do not exceed R2million. It must be noted that a taxpayer must disregard a capital gain made when the proceeds from the disposal of the primary residence do not exceed R2million, but he or she must not disregard a capital loss if one is made on the disposal of the primary residence.
A ‘special trust, is defined in para1 for this purpose as ‘a trust contemplated in paragraph(a) of the definition of "special trust” in section1'. The trust contemplated in para(a) is
‘a trust created—
(a) solely for the benefit of a person who suffers from—
(i) any "mental illness” as defined in section 1 of the Mental Health Care Act, 2002 (Act No. 17 of 2002); or
(ii) any serious physical disability,
where such illness or disability incapacitates such person from earning sufficient income for the maintenance of such person, or from managing his or her own financial affairs: Provided that where the person for whose benefit the trust was so created dies, such trust shall be deemed not to be a special trust in respect of years of assessment ending on or after the date of such person's death.'