If you buy a bigger property for residential purpose and move out of your current house. How long do you have to sell your previous house before SARS says it is investment property and there will be capital gain on the sale of your first residential home?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The matter is dealt with in the Income Tax Act – SARS merely applies the law.
The fact that the property was acquired and used as a primary residence, will confirm the intention of the taxpayer that the amount received on the disposal thereof is capital in nature (for purposes of the definition of gross income). Your request probably relates to paragraph 48 of the Eighth Schedule.
Because it is an asset, as defined in paragraph 1 of the Eighth Schedule, a capital gain may then result. Paragraph 45 provides that “a natural person … must, when determining an aggregate capital gain or aggregate capital loss, disregard” essentially R2 million rand of the capital gain.
In terms of paragraph 48 of the Eighth Schedule a “natural person … must for purposes of paragraph 47 be treated as having been ordinarily resident in a residence for a continuous period (not exceeding two years), if that person did not reside in that residence during that period for any of the following reasons—
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at the time the residence was that person’s primary residence it had been offered for sale and vacated due to the acquisition or intended acquisition of a new primary residence;
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that residence was being erected on land acquired for that purpose in order to be used as that person’s primary residence;
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the residence had been accidentally rendered uninhabitable; or
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the death of that person.”
If the property was vacated for other reason than the above, the capital gain relating to that period would then not qualify for the paragraph 45 exclusion – the taxpayer did not ordinarily reside in it as his or her main residence; and didn’t use it mainly for domestic purposes. So, in this instance an apportionment of the capital gain is made under paragraph 49. The result would be that the capital attributable to the use will result in a capital gain that doesn’t qualify for the R2 million exclusion.