I am working on an Estate where a Primary residence is in a farm that is more than 2 HA. I need to calculate the capital gains and the primary residence exclusion amount.
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
It is outside the scope of the service offered byus to calculate amounts, such as the capital gain. We also will not test the calculation, but we will give some comments about it. The first point relates to the fact that it is a pre-valuation date asset. The taxpayer then has one of three options with regard to the base cost, which essentially determines a base cost at 1 October 2001.
With regard to the capital gain itself, we accepted that the asset was not acquired by the surviving spouse in terms by ab intestato, testamentary succession or in settlement of a claim arising under the Matrimonial Property Act.
You referred to the fact that this relates to a primary residence and don’t address the paragraph 45 exclusion in the calculation. We accepted that this is what the guidance were required in respect of. Remember that, for land that exceeds two hectares, it will be necessary to determine the capital gain attributable to the two-hectare portion, and apply the exclusion of R2 million against that portion. Remember also that the land used for farming purposes, and therefore not used mainly for domestic purposes, would NOT qualify for exclusion as a primary residence.
With regard to the apportionment of both proceeds and base cost, SARS, in their CGT guide says that “any method of apportionment must be logical, fair and reasonable and take into account the facts and circumstances of the particular case.” They use market value in both instances and we submit that may well be appropriate in this instance also.