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CGT Implications on sale of primary residence subsequently converted to a sub title property

Friday, 30 January 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: My client is changing his primary residence into sub title property. He is building a house on the property, next to his primary residence. What is the CGT implication for selling both houses?

A: On subdivision of the land there is no disposal event (See also pg. 77 of SARS CGT Guide issue 4) and this will merely result in two assets being held by the person. In our view the subdivided land to be developed for sale does not form part of the "primary residence” anymore as defined in para 45 Eighth Schedule of the Income Tax Act as a "residence” requires a structure or building used for domestic purposes by the person having the interest therein (i.e. owner). In our view the subdivided land developed for sale or realisation will not fall within the primary residence exclusion and any capital gain will be fully taxable. 

Please click here to access a SARS ruling which addresses this issue.

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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