Primary residence exclusion: Things to look out for

The Eighth Schedule of the Income Tax Act, which deals with capital gain tax, allows for exclusion from liability on any gains realised on the sale by a taxpayer of a primary residence on the first R2 million of such gains. There are, however, several more complex matters that often arise in the determination of any gain, and we examine some of those in more detail below.

How often do you qualify?

There is no limit on the number of times a person can qualify for the exclusion of R2 million, even during the same year of assessment. It applies each time a primary residence is disposed of, and there is no lifetime limit. Thus, a person could qualify for more than one primary residence exclusion in a year of assessment if multiple primary residences were disposed of in that year.

Apportionment of the primary residence exclusion when more than one person has an interest in a primary residence

The gain threshold operates on a “per primary residence” basis and not on a “per person holding an interest in the primary residence” basis. This requirement means that when, for example, two individuals have an equal interest in the same primary residence, each of them will be entitled to a primary residence exclusion of a maximum of R1 million. In this example, they would also disregard any capital gain or loss if the proceeds on disposal of each person’s share were R1 million or less. This situation would typically apply to spouses married in community of property. When more than one person holds an interest in the same residence, the primary residence exclusion and the proceeds threshold are split only between those persons who occupy the residence as their primary residence. The interests of persons who do not reside in the residence as their primary residence are not taken into account.

Only one residence at a time may be a primary residence of a person

Only one residence may be a person’s primary residence for any period during which that person held more than one residence. This requirement means that there can never be an overlapping period when one person owns two residences and uses both as primary residences

Size of residential property qualifying for exclusion

The primary residence exclusion applies only to so much of the land that does not exceed two hectares. 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. The land must be used mainly for domestic or private purposes together with the residence. Examples include land containing a swimming pool, tennis court or stables. Whether it is used ‘together’ with the residence is a question of fact.

Depending on the facts of each case, there are several potential pitfalls in dealing with the primary residence exclusion, and homeowners are advised to engage professional assistance when dealing with such matters.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.


Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.


Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.


Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.