With particular reference to the primary residence exclusion of R2 million, how is the disposal by a deceased estate of a primary residence taxed in the hands of the estate?
Important:
This answer is based on tax law for the tax year ending 28 February 2017.
Answer:
You indicated that the individual died after 1 March 2016 and the issue is, in the first place, whether paragraph 40(3) still applies? We submit that it does. Whilst paragraph 40(1), since its amendment, refers to a “person who dies before 1 March 2016”, paragraph 40(3) applies “for the purposes of this Schedule” – being the Eighth Schedule.
Another consideration is paragraph 48(d). It treats a natural person (for purposes of paragraph 47) 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 due to the death of that person. In other words, if the residence is disposed of within 2 years, it would basically be treated as if the deceased resided in it after death.
With regard to the R2 million exclusion, SARS’s view is that both the deceased and his or her “deceased estate are entitled to the R2 million exclusion because they are separate persons for income tax purposes and are not deemed under the Act to be one and the same person.” See the example in paragraph 11.7.4 of their CGT guide. We agree with that view.
It is interesting that the principle is not qualified to deal with a disposal, by the estate, in the same year of assessment of the death of the individual. Based on the interpretation above, there is no reason that it should be treated differently – i.e. there are still two persons.