[Question] Capital gains on sale of a property?

[Justine]

Good afternoon,

We have just purchased a new home that will hopefully be transferred into our name on/by Sept 1 2013.
We own our current home and plan to put it on the market after we move in to the new place, ie. after Sept 1.
I imagine it may take a couple of months to sell (we're not in a rush, we'd rather get a good price).
My question to anyone that may know is when does your old house become a 'secondary residence'? and hence lose its capital gains exemption status.
Is the few months that we own both and actually live in the new house enough to cause us to have to pay full capital gains on the sale the old house? (we've owned the old house for 7.5 years).
Any opinion would be greatly appreciated, thanks.

[CLIVE-TRIANGLE]

You would apportion the capital gain, and only the unused period would not qualify for the exemption. So, if you owned the house at date of sale for 8 years and you owned and resided in your new house for 6 months, the capital gain x 6/96 would not qualify for the primary residence exemption.

[flaker]

Clive, for sake of education, can one then not claim a loss for the time the house remains empty awaiting a sale? OR can one not just consider the old house the primary residence until it is sold?

[CLIVE-TRIANGLE]

Unlikely Flaker. This is an apportionment of an already determined capital gain.

If during the unoccupied period, rental income is generated and that income is less than the attributable expenses, then sure, that loss on rental activity is claimable. But that is somewhat unlikely.

[Justine]

Clive, thank you very much for your speedy and clear explanation.
Much appreciated.

[Mike Simmonds]

Good afternoon,

We have just purchased a new home that will hopefully be transferred into our name on/by Sept 1 2013.
We own our current home and plan to put it on the market after we move in to the new place, ie. after Sept 1.
I imagine it may take a couple of months to sell (we're not in a rush, we'd rather get a good price).
My question to anyone that may know is when does your old house become a 'secondary residence'? and hence lose its capital gains exemption status.
Is the few months that we own both and actually live in the new house enough to cause us to have to pay full capital gains on the sale the old house? (we've owned the old house for 7.5 years).
Any opinion would be greatly appreciated, thanks.

I realise that this is quite an old thread, but I think anyone in a similar situation may find this piece out of SARS's Comprehensive Guide to Capital Gains Tax quite useful.

11.7.1 Residence vacated and offered for sale [para 48(a)]

This item deals with the case of an overlapping period of ownership. It overrides the general rule in para 45(3) which provides that a person may not have more than one primary residence at the same time.

This item applies when
• a residence was a person’s primary residence,
• at that time it was offered for sale, and
• vacated

due to the acquisition or intended acquisition of a new primary residence.
This concession will not apply to any period during the two years in which the residence was let. This is because para 48(a) requires the residence to be vacated, and para 49 is not subject to para 48.

Example – Old residence offered for sale due to acquisition/intended acquisition of new residence
Facts:
Xolani is transferred from Knysna to Cape Town and struggles to sell her home in Knysna. In the mean time, she acquires a home in Cape Town and is able to eventually sell her Knysna home 18 months later.
Result:
The overlapping period of ownership may be included as periods that both homes were considered to be ordinary residences and hence no apportionment is required.

11.7.2 Erection of new primary residence [para 48(b)]

This item caters for the situation in which land has been purchased with the intention of erecting a primary residence on it. Land on its own would not be a primary residence as the definition of a ‘residence’ means ‘any structure’. A primary residence cannot exist without a ‘structure’. Therefore, for the duration of the time taken to erect a structure, (that is, a home) that period would not qualify as the owner’s ordinary residence without this overriding provision. It effectively allows a person a two-year period in which to complete the erection of a residence to be used as a primary residence without penalising that person.